Did you ever get a tax refund and just waste the money? I know i have before, thanks college! Hopefully you will get a tax refund this year as the last few haven't been as kind to me. This is the first year I will be getting a refund in the past four years so I am STOKED. Due to some short term stock options sales in the past I've had to cut the government a check each April. It sucks! But home owning, charitable contributions and investing more in my 401K have given me a refund for 2017! If you're able to get a tax refund this year you have a few options: splurge, save or a combination of the two. I'm more of the latter option as I think we all need to to fulfill a few wants as well as our needs with this extra money.
For example I will getting around $2,000 this year and intend to do the following:
$900 towards Roth IRA (savings)
$550 towards new golf clubs (splurge)
$400 towards Ally savings (savings)
$150 towards dog charity (good karma — future tax write off)
Of course I could use all $2,000 towards one specific goal but I don't think it is nearly as rewarding and more importantly motivating as spreading it between them. When people think about paying off debt, saving or investing for the future it typically comes with a groan or complaint about being "boring." The opposite occurs with splurging and buying a new TV or item you probably don't absolutely need. It's easy to feel guilty and think you should have spent the money more wisely once the newness wears off. This is why I recommending doing some sort of want & need combination with your refund or any type of commission or bonus you get. Everyone will have different "splurges" so I will let you decide how you'd like to spend that portion of your refund.
Here are five great ways to spend the other portion more wisely and actually help the angel on your shoulder.
Start A Savings Goal
In my experiences "saving to save" has a lower chance of being successful that actually having a goal in mind. Savings goals need to be tangible and attainable. Some examples could include:
$5,000 for a short term emergency fund
$8,000 for European vacation
$15,000 for a down payment on a house
Instead of putting your savings in an account that yields .01% interest go with Ally's or Barclays 1% yield. Still not much but better than nothing!
Pay Down Credit Cards
Carrying a credit card balance is never a good idea as you are getting crushed in interest. Most interest rates range between 10 – 20% APR depending on your credit. Instead of keeping the balance use a portion of your tax refund to become debt free or pay a large chunk of your balance to avoid future interest charges. Remember credit card debt is the WORST type of debt as it had no positive impact like your student loans provided an education or mortgage provides your home.
Open or Contribute to a Roth IRA
If you're new to reading you know I am huge proponent of contributing to a Roth IRA. It's another way to fund your retirement and has tons of tax advantages (read more here). Even if you haven't opened one yet I highly recommend spending 15 minutes and getting started. Opening one is very easy with Vanguard can start contributing immediately.
For those of you that do have a Roth IRA already congrats! As a refresher the annual contribution limit is $5,500/month so a portion of your tax refund can be a great way to jumpstart your contributions for 2017. Even if you can't max out your Roth IRA don't feel like it's a waste and avoid getting started. Even adding a few hundred dollars or $1,000 is better than nothing.
29 year old opens a Roth IRA at Vanguard
Initial Contribution: $2,000 from tax refund of $5,000 total
Never invests again for 30 years (not recommended but for example sake)
Invests in a low cost index fund that grows 8% annually (roughly the average of the overall stock market over the past 100 years)
At 59 the $2,000 contribution has grown to $20,400 (919% increase)
This example assumes you never contribute another dollar which is unlikely.
Another side hustle I am currently working on is publishing my first book. Ten years ago publishing a book was hard, if not impossible for independent authors. Luckily Amazon is amazing and makes it very easy for anyone to publish a hard copy book with Createspace or self publishing on Kindle with Amazon KDP. Once you publish your work you will be able to collect royalties as long as it is active and being sold. My initial costs will be around $500.
Starting a side hustle may require some time and money upfront but can pay dividends in the long run. Some bloggers I follow make $50,000 to $100,000 A MONTH. I'd say it's worth a try, the worst that happens is you lose a few hundred dollars. The best that happens is you make enough money to leave your job and work for yourself, with no boss, no schedule and enjoy financial freedom.
Pay Down Student Loan Debt
Although student loan isn't as bad as credit card debt as the interest is lower it is still debt. It's hard to start acquiring wealth when you have debt hanging over your head. Use a portion of your refund to pay extra towards your student loan debt.
What will you choose to do? I think it's easier to do one of the five recommendations above if you break your tax refund into chunks instead of just spending or just saving the entire amount. I'm sure you will make the right choice. If you have any questions feel free to let me know in the comments or reply directly to my email: email@example.com.
"Are you on a laptop all day? Would keeping an excel file or Google doc file help you track your expenses easier? Would it be more convenient to keep an old fashioned pen and paper type of budget? How about keeping a running tab on the fridge so that you are tracking all expenses?
"For the few that actually look at their goals again, it’s common to revisit them only at the end of the year. This is a crucial error. As our circumstances may change day to day and month to month, so will our goals. A lot can change in twelve months, which is why I propose reviewing once a month, or at the very least every three months.
Revisiting also keeps our desires relevant. It’s helps us remember that we even have them. Ideas aren’t enough, we must execute.
As the great Thomas Edison said, 'Vision without execution is hallucination.' " -Jiu-Jitsu Finance
Increasing your income
"After you have lowered your expenses, it is time to bring in more income. There are many ways to bring in more income especially during the holiday season. Maybe your full-time gig will let you work extra hours for overtime. In addition, retail stores typically hire for the holiday season. That part time holiday gig could turn into a longer gig...
Retail jobs aren't the only part-time jobs available. There are plenty of other side hustles you can pick up right at home to make extra money like: Freelance Writing, Virtual Assistant, Social Media Management." -Financially Fit & Fab
Turn on your automatic savings
"Another no-hassle way to save is by setting up an automatic transfer to your savings account. By automating your transfer, you're making sure that you don't forget or pay your savings last–and as a bonus–automating your savings means you never "see" that money and subsequently makes it sting a little less.
Two new apps that I am loving lately are Digit (which has a cult following). It automatically transfers money from your checking account you won't miss. I also love Qapital, which has rules you can set to "save the change" from your purchases. I saved over $75 my first month of Qapital, which was really astonishing to me. Click here to give it a try." -Financial Best Life
Develop the habit to spend with cash than card
"To spend with cash is also an actionable way to get out of debt. According to the research on peoples spending with credit cards; it was revealed that those who shop with credit card are impelled to spend more on luxury items because they feel they are paying with “play or fun money”. In other words, people who shop with credit card spends more than required.
Evidently, finance advisors hold a strong stand on this. They strongly advise that people who are working on eliminating their debt should cultivate the habit of spending cash, to avoid being tempted to spend on irrelevant items." -MoneyMiniBlog
Leave your wallet in the car when shopping
"This trick is simple but impactful. When doing any kind of shopping, use cash, and only take the amount of money you want to spend in the store with you. Leave all other cash, credit cards, and debit cards in the car.
This is very powerful, especially when grocery shopping. In addition to the amount you plan to spend, you can consider bringing in a small cushion of a few dollars (in case there are hiccups at the register). You will shop (and spend) completely differently when you only have a hundred dollar bill with you versus a hundred dollar bill and your debit and credit cards.
Don’t give yourself a way to spend more money than you want to — and you won’t." -Hope + Cents
Start and maintain an emergency fund
"There is no fixed formula for how much you should have in an emergency fund. Some school of thoughts say 6 months’ worth is sufficient, some say a year’s worth. Everyone’s situation is different and as such, each strategy should differ. To start however, I would suggest understanding your spending habits, and then implementing a 3-6-9 guideline.
3 Months: If you are single without kids, renting, no car, partially dependent on parents for income or any combination of these factors, start off with a target of 3 months’ worth of expenses for a rainy-day fund.
6 Months: Married, kids under 18, own a house or condo, own at least one car, or any of these combined, the base target should be 6 months’ worth of expenses (if married, base it off the income of the highest earner).
9 months: Self-employed, freelancers, anyone with a volatile job or unpredictable paycheck, 9 months’ worth should be the benchmark." -Investment Conversations
How students should avoid the debt trap
"The easiest way to prevent yourself from falling into the debt-trap is by living within or below your means (that is, not overspending). In addition, it is necessary to do research before getting credit cards (or signing any contract to take on loan/ debt) so that you really understand how it works. As a student, you must learn to treat your credit card with respect." -Investment Conversations
Build a budget and stick to it
"There are many free apps available to help you track expenses, but I always prefer using my own spreadsheets. That enables me to have the most control over what I’m doing. I understand that being able to access your spreadsheet on your phone makes tracking significantly easier, which is why I prefer Google Sheets over Excel. You can download the Google Sheets app and pull up your expense tracker wherever you are to input a transaction or monitor your spending. By combining the expense tracker as separate tabs within the same spreadsheet as the bill tracker, you can have all your finances in one easy-to-access location." -The Budget Boy
Create an automatic savings account for travel.
"Here's how this automated system specifically works for you and your travel fund. Once it's set up, it goes like this:
-Your checking account receives income.
-The next day, your checking account automatically transfers money to a separate (different bank) savings account—aka your travel fund.
Know Your Interest Rates
If you have anything that you are making payments on every month, you need to know how much interest you're paying. Make sure you know these numbers, too. Ideally, you'll want to pay debts down that have a higher interest rate first. However, there is another school of thought out there that suggests paying the bill with the lowest balance first. I'd say either way is fine as long as you're making progress and as long as the higher interest rate stuff isn't astronomical.
Action: Look at your statements or call the companies to get your current interest rates on all monthly obligations.
Negotiate Lower Interest Rates
If, by chance, you ARE paying astronomical interest rates on any of your liabilities, call and try to negotiate a lower rate. Oftentimes, if you've demonstrated a history of paying on time, the company will work with you to reduce your rate. The only trick is, you have to ask.
Action: Know your numbers and call the companies to negotiate if you're paying high interest rates.