With the US tax deadline around the corner, Jason Brown, from TheBrownReport.com and author of "Five-Year Millionaire," sits down with Julie Hyman to discuss common mistakes that people make with their tax refunds.
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The IRS has doled out almost $163 billion in tax refunds so far this year, with the average person receiving nearly $3,300. That's up about 25% from 2024. So how can you turn your tax refund into long-term financial success? Joining me now is Jason Brown. He's a stock market expert at the brownreport.com and author of the book Five Year Millionaire. Um, so tax refunds, which hopefully everyone will get, not everyone does, is luckily enough to get one. But what are the biggest mistakes that people might make with that tax refund?
I think some of the biggest mistakes that people make with their tax refund is just treating it like it's free money and that, uh, you know, using it to shop or just spending it on consumer goods when when you think about it, that's the biggest check that most people get, and they only get it once a year. And so there's a unique opportunity if they prepared or planned in advance to put that to work in the stock market, invest it, and put yourself in a position where that money could generate roughly that amount every year versus just waiting for it from a tax refund.
So, and how do they avoid doing, you know, making the mistakes that you were just talking about?
Yeah, I think first it's about having a plan. And so if you're already behind the curve all year long, meaning you have credit card debt, consumer debt, or things that you've already gotten yourself into, maybe a financial situation where it's hard to then when you get that chunk of money say, "Don't pay off that debt." Or if you've been stressed all year, it's a little bit tough to say, "Don't take that vacation." 'Cause now your emotions are involved, and you're like, "I feel like I need it 'cause this year has been so rough." But if they can kind of plan ahead, not get in debt, control their emotions, and then say, "This year, I'm going to do something different with my tax returns," which may mean not spending as much on Christmas gifts, may mean scaling back on birthdays or different things like that to put themselves in a position where they can use that money to do something different.
Okay, so then when they're presented with that opportunity, they get that tax refund check, they don't have the debt, they're ready to spend it, what do they do or invest it? What are some of the options? How should they be thinking about it?
Yeah, so that's why I said it all starts with making a plan. I always tell people if you want a lottery, some people say, "I'll invest my money once I have some money." I say, "Well, great, well, if you won the lottery today, would you know what to do with the money?" If you if I handed you a million dollars, would you know what to invest in? They say, "No, I'd go get educated." I say, "So then it's not about the million dollars, it's about the education." So get the education ahead of the tax return, get the education before the money comes so you know what to do with it. And I would tell people to open what's called a practice account where you can practice investing in stocks and practice investing in options, and you can get real world experience in a safe environment. So that way when you get the real money, you'll already have a track record of winning or losing, and you'll already know how to buy and sell and what stocks you want to invest in.
And I guess also if someone gets the tax refund, they don't have to, you know, maybe they can if they've planned, they can do both. In other words, maybe they can take a small vacation, but then use the rest of it to actually put that practice to work and put their money in the market.
You could. Big picture, there's no real success without sacrifice. And when you think about people's tax returns, it's $3,000, $2,000. When you start to look at the average stock like Apple stock being $200 a share, I mean, you can only buy 10 shares if you if you had the whole $2,000. So now I'm split that, and you spent $1,000 on vacation, you only got $1,000 left. I think that's what discourages most people because they don't see the big enough impact from investing a little bit amount of money. But if they understood the compounding interest and that that little bit could grow into a lot if they made the sacrifice up front, they they'd be willing to pay the price.
So it's really a mindset change that you're talking about here.
It absolutely starts with a mindset change. And you know, they say personal finance isn't taught in schools, but that's part of the problem. If it's not taught early, then the mindset is what? Just spend it. I deserve this. I'm getting this back. I'm going to have some fun. Or sometimes the mindset is, "I'm okay making financial mistakes because I know this $2,000, $3,000 is coming back, and I'll use that to bail me out." So we definitely have to change the mindset around tax returns, around getting into financial trouble early, and around planning for long-term success.
It's not a windfall. All right, I like that. Thanks, Jason, appreciate it.
Thank you. Thanks for having me.