How to invest your tax refund so it feels like splurging

The easiest money to fritter away is the “expected windfall,” otherwise known during this time of year as “the tax refund.”

Who can blame us for mentally spending our money five times over during those 21 idle days the IRS says it takes to process electronically filed returns and send refund checks? That’s three whole weeks to obsessively click “Where’s My Refund” and rearrange the furniture to see how a new 72-inch flat-screen TV might affect the living room’s feng shui.

Good intentions, so-so follow-through

Plenty of strong-willed taxpayers swear they’re going to do “the right thing” with their tax refunds. In fact, in response to a new NerdWallet.com survey, 54% of folks who expect to get a refund said they plan to save or invest the money. And some of them actually will!

When asked if they had followed through with their intentions last year, 41% of taxpayers who got money back from the IRS said they really did take the financial high ground and either saved or invested their refund.

That’s great — but it appears that our resolve is growing weaker.

Among those who expect a refund in 2016, more people than last year say they should use it for a splurge — 34% want to spend it on a vacation, home improvements or at the mall, compared with 31% who received a refund last year and say they spent it on retail therapy. Clearly the much more fun “spend it” trend is getting some good PR.

A duffel bag filled with cash has been left on your doorstep …

That sounds a lot more exciting than, “Your tax refund will be directly deposited into your account in the next three weeks.” Yet that’s not how tax-season information and advice is typically delivered. Instead, we get the eat-your-peas-and-carrots spiel:

• 70% of taxpayers will receive a refund in 2016, according to the IRS.
• In 2015, the average income tax refund was $2,797; expect this year’s average refund to be in the same ballpark.
• For those who carry credit card balances month to month,paying off credit card debt is probably the best use of tax refund dollars.
• After that, direct money toward building an adequate emergency fund.
• If you’ve got a big-ticket expense coming up soon (e.g. a new car, home improvements, vacation), set aside refund money in ahigh-yield savings account until you need it.

No, really, take that duffel bag of cash …

C’mon: There’s plenty of juicy material buried in those dry bullet points above — if you know how to spin it in a way that may actually inspire people to save and invest their tax refunds. How about:

Seven out of 10 of you reading this article will soon have a pile of money — an average of nearly $3 Gs per person — drop into your lap. You know what to do with it: Pay off those thugs who’ve been shaking you down for monthly payola, buy reinforced locks for your safe room and peel off a handful of hundred-dollar bills for those capers you plan to carry out later this year.

When you put it that way, paying off debt and boosting your savings sounds a lot more exciting than, well, paying off debt and boosting your savings.

But what about the 7% of taxpayers NerdWallet surveyed who expect to receive a tax refund and said they plan to invest the money in the stock market? Hooray for them! We’re keeping our fingers crossed.

Invest it in the stock market? Now? Are you kidding me?

We certainly hope for 100% follow-through from those who pinky-swear they’re going to invest some of the money from their income tax refund in stocks for the long haul. (Last year 5% of taxpayers who got a refund actually did.)

Given the market’s recent bumpy ride, it’s understandable if you’re a tad reluctant to make good on that promise.

Now’s a good time to remind everyone that historical data shows that short-term market dips are just that: short-lived. Temporary market dips are only financially devastating if you’ve invested money that you need in the near-term (at a minimum, in the next three to five years). When the market roars back to life, as it always does, you want your tax refund windfall to be already invested.

As for finding the resolve to go from “should invest my tax refund” to “did invest my tax refund,” we’ve got a few ideas on how to make the idea so palatable that you actually follow through:

Say, “In your face, you can’t touch this!” to the IRS: Not to anyone’s actual face, of course. That’s just rude. But you can keep the tax man on the other side of the velvet ropes legally by shielding earnings on your tax refund from a future tax hit by opening a Roth IRA.

Compare yourself to famous investors: When conversations inevitably turn to stock market volatility (even if you’re the one who has to raise the topic) turn knowingly to your pals and mention there’s this guy named Warren Buffett who, like you, is no sissy sitting on the sidelines when the stock market drags down solid companies for no fundamental reason. For investors like the two of you, stocks are on sale! Then quote his famous line from one of his annual letters to Berkshire Hathaway shareholders, “Be fearful when others are greedy and greedy only when others are fearful.”

Put a robot wealth manager on your payroll: “Have I told you about Hal, my wealth manager?” You can totally say that with a straight face and mean it when you hire a robo-advisor to manage your portfolio. Robo-advisors automatically invest your money using sophisticated algorithms. Many even double as your robot CPA, making maneuvers to help cut down taxes. With low initial investment requirements ($0 at Betterment and $500 atWealthfront, NerdWallet’s top robo-advisor picks overall), it’s a no-brainer way to invest.

Bask in your brilliant diversification strategy: As a newly minted thousandaire (thanks, Uncle Sam) you can instantly spread the wealth around — across asset classes, industries and various indexes — by investing in exchange-traded funds (ETFs). Like mutual funds, ETFs contain a bundle of multiple investments. But they trade like stocks and are known for their very low fees. That means that, without a lot of money up front, you can build a highly diversified low-cost portfolio and sleep well at night,thankyouverymuch.

Buy shares of stock in a showy way: Is there a publicly traded company that you’ve been dying to own a piece of? There’s no better way to announce your intentions than by stopping in the middle of a sentence while you’re fiddling with your phone and excusing yourself from the table to “pick up a few shares of XYZPDQ.” Don’t walk too far out of earshot; otherwise you’ll miss out on the best part: Pretending to bark orders at your stockbroker when you’re actually just placing trades via your discount brokerage account’s mobile app.

See? Doing the responsible thing and investing your tax refund doesn’t have to be a drag.

Dayana Yochim is a staff writer at NerdWallet, a personal finance websit. Email: dyochim@nerdwallet.com. Twitter: @DayanaYochim.

This article first appeared in NerdWallet.