It’s that time of year again. Millions of Americans will begin filing their income taxes soon and many are due a refund. According to CNN Money, the average refund in 2015 was $2,815. If you expected to get a refund, you might have already begun dreaming of what you can do with it. Even though it’s more fun to plan a vacation or a shopping spree, you want to use this opportunity to make an impact in your financial standing and quite possibly, your life. Before you commit to anything, check out this list of things that would give you the most bang for your buck this year.
1) Jump Start Your Emergency Fund
Dave Ramsey recommends that you start off with at least $1,000 in your emergency fund. This is money that you will use to avoid going into debt and reversing a cashflow negative status. One of the main reasons people use debt is because they have little to no savings to cover “emergencies.” One thing about unexpected expenses is that they will always come up! If it’s not one thing, it’s another. The best thing is to plan for them so you can begin getting out of debt. Why not start with your refund check?
2) Pay Down Debt
Even if you have what seems to be an inordinate amount of debt, use this money as an action of faith. This can be a symbolic action that has real impact. If you are in debt to the tune of $150,000 or more, throw $2,000 at it and just keep going. It might feel dumb to not even knock a small dent into the overall balance, but it’s a bold move that draws the line and sets you up for success. I remember paying the first $200 on my business debt of $20,000. It wasn’t super inspiring, but I felt like had already started and had to make that $200 mean something down the road. We went on to use the debt snowball method and eventually pay off all our debt, but we had to start somewhere. You will have to do the same. Wherever you are in your debt payoff journey, using your income tax refund check could be just the start you need.
3) Start Investing
How many times have you said you would begin to learn more about investing and finally try your hand at picking securities? You might have a retirement fund at your job, but that should not be your sole source of investment activity. Starting with $500, $1,000 or $2,000 would be the best thing you could do for your future self. If you are not sure how to get started, there are classes, YouTube videos and other resources to get you going. Start with brands you are familiar with, have longevity in the market and in operations and have products or services you think will be around for years to come (think durable goods and non durable goods). If a company pays dividends (you can check Google to see if they do), even better. A company able to pay dividends to investors, typically signals a cash-healthy company. Once you get started, make sure you are comfortable with the fact that this money should remain untouched for 3-5 years at least. This is not risky day trading. This is long-term value investing. The exciting part is that your money will grow more than being in a traditional savings account. There you get a 1% return maybe. With investing, you can get upwards of 6% or more (depending on how the market is doing.) Just think, if you took $2,815 and invested it regularly for 5 years, at a 6% return, you’d have over $16,000! That’s a good reason enough to get started. Tradeking.com is a great online brokerage for the newbie investor.
4) Start a Business
We live in the time of quick-start businesses. The internet makes it easier to start, test, crash then start again. Don’t believe me? There are countless stories of entrpreneuers who failed at several business endeavors only to start their most successful, most profitable business in a matter of days. Need convincing? Check out a few books that will show you that you are closer to getting started than you think:
- The 7 Day Start Up: You Don’t Learn Until You Launch
Check out these resources when you can (hint: use the Amazon wish list function to add these to you book queue if you can’t get them all at once.) Either way, find some thing manageable enough and get going. Whatever you decide to do, inevitably you’ll need a website. So many people have asked me how to start a blog/website, that I created a free tutorial for my readers. It’s a must-have for the driven and entrepreneurial! Click here to access the video on how to start in less than 10 minutes.
5) Invest in Yourself
This might mean taking taking time and money to pour into your health or relationships. It could be learning a new skill. Sometimes, you need to step it up a notch and get certified, pay a premium for networking and mentoring at a conference or learn something highly specialized. Check out places like Udemy.com, Lynda.com, Coursera.org, Edx.org for courses (many are free) you can invest in.
6) Home Improvement
This should be done, but with caution. If all your financial ducks are in a row, (to me, that means no debt and sufficient savings for college, retirement, etc.) then you can get it into cosmetic improvements. But here, I am really referring to those projects that might save energy and money in the long run: new windows, fixing drafty doors, and sealing ducts. Check out CNN Money’s list of home improvement projects that can help make your home more energy efficient.
7) Get Rid of It
Yes, that is right. Eventually (like today), you should plan to adjust your withholding so that you don’t get a big refund check at the end of tax season. Why? Well because, the more money you get taken out for taxes than you will actually owe on each paycheck, the less you have during the year to pay bills. To put it another way, you are letting Uncle Sam “hold” your money, interest free, while you still pay interest on debt. Take all the money that is due to you during the year to pay down debt and reduce the amount of interest you pay (or forgo) by increasing the number of allowances on your W-4 form.
Was this list helpful? Do you think you’ll be able to try any of these suggestions? Comment and let me know how you make out!