“Building wealth is simple. It’s not easy, but it’s simple. Make more money than you spend and invest the difference wisely. Add time to that equation, and that is how you build wealth.” – Rob Berger
If you are planning on getting a tax refund this year, chances are you’re like most people and already have it earmarked for some long-desired consumption, well before it actually hits your bank account. But this year you may want to start a new tradition.
The IRS has stated that the number of tax refunds issued has steadily been increasing over the past few years, and more Americans are enjoying a little extra cash to play around with in their budget. But what to do with the projected windfall you might ask? This year give your money some purpose and check out these 10 things that you can do with your refund to help you have a better 2016:
1. Build Up (or Start) That Emergency Fund
Financial experts recommend having an emergency fund established that is substantial enough to pay for at least 6 months of expenses. Many people do not have this fund in place before a financial emergency, such as the loss of a job, and simply rely on credit cards or other expensive means of accessing needed cash.
Instead of spending your refund on something you won’t even remember in a month, start that emergency fund using a high interest rate savings account. You may be surprised at how much it will grow once you take the initial step and pay yourself first.
2. Pay Off Credit Card Debt
If you’re only making minimum monthly payments on credit cards with 29.99% interest, you’re doing little more than covering your interest payments. Using this year’s refund to make a real dent in those bills – or even eliminate them for good – is a smart strategy. It may not be as much fun as a splurge, but you’ll save big bucks down the line. And you can take that next big splurge debt free (and guilt free).
3. Upgrade Your Work Wardrobe
This doesn’t mean blowing your entire refund on killer shoes or that little black dress you’ve had your eye on. However, investing in a new suit and a few key separates can help you stand out from the crowd, which can make the difference if you’re angling for that big promotion. Looking the part demonstrates to the higher-ups that you’re serious about your responsibilities.
For women, good investments include a great blazer and coordinating pencil skirt and slacks; men should opt for a blazer and a couple of pairs of slacks. Go for neutral colors that can be mixed and matched. Add a pop of color with blouses and scarves (for women) or ties (for men).
4. Buy Some Stock
In the audio book “The Millionaire Next Door”, author Thomas J. Stanley tells the story of Teddy Friend, a man who argued that his parents were never able to save money because they never earned a high income. However, over a 46-year period they financed a smoking habit that included 50,377 packs of cigarettes. Stanley made the observation that if Teddy’s family had invested the money they used to purchase cigarettes to finance a tobacco portfolio, that they would have earned approximately 2 million dollars. Of course, an argument can be made that it’s better to quit, but the main point of the analogy was the amount of money wasted versus potential investments.
Look at your own less-than-ideal habits. Give up buying those cases of soda every week and start purchasing stock. You may not match the multi-million dollar return on investment described in this story, but you’ll be enhancing your net worth along with your waistline.
If you’re a novice, don’t just jump into the stock market. Do some initial research, seek professional advice, and don’t invest the rent money. That’s because while this kind of investment can produce significant rewards, there is an inherent risk of loss as well.
5. Prepay Your Vacation
You’ve always wanted to take a trip to Paris, and this year, you’re determined to get there. Why not use your refund to prepay at least some of your expenses? You’ll be able to enjoy all the sights and sounds without racking up high interest credit card debt that you’ll be paying long after you’ve returned home.
6. Do Some Home Improvements
OK, it’s true that you probably won’t be able to do a top-to-bottom home makeover with $3,000. But you can make some small dollar, meaningful improvements to boost the value of your home. Adding a few plants and some mulch in your front lawn can add to your home’s curb appeal, which is essential if you intend to sell. Adding an attractive backsplash in the kitchen will almost certainly produce a return on your investment. If you need inspiration, check out 10 Home Improvement Ideas That Will Transform Your Home To Brand New.
7. Make an Extra Mortgage Payment
Most mortgages are structured with 30-year repayment periods. However, if you can afford the higher monthly payments associated with 15-year mortgages, you’ll ultimately save thousands of dollars. But if you can’t, you can still use your tax refund to make a single extra payment on your 30 year mortgage. By doing so every year, you’ll shave that mortgage down to 26 years according to Interest.com. That’s nothing to sneeze at!
8. Seed Fund Your Own Business
If you’re a fan of the hit television show, “Shark Tank,” you may enjoy seeing people flexing their entrepreneurial muscles, and receiving financial backing for businesses and inventions that they are passionate about. You may not ever be financed by a venture capitalist or an angel investor, but you will be able to write off some of your expenses on next year’s tax return. You’ll also be generating an alternate income stream, which can only be good. Not sure how to start a business on a budget? Here are 6 ways to get the ball rolling for less than $20.
9. Get Something You Need
Is your car in serious need of a new set of tires? Have you been putting off getting that nagging cavity filled? While you have the money in hand from your tax refund, why not take care of something you or your family really needs, rather than continuing to put it off? Take care of these things now, or risk having the expenses continue to grow exponentially. At some point, you won’t be able to put things off any longer, and you may be forced to go into debt to deal with the expense.
10. Invest In Your Career
You’ll almost never lose by betting on yourself. Using your tax refund to enhance your career prospects is a very wise bet. Consider pursuing an online certification for your present line of work, or enrolling in a course at your local college or university to learn new skills. Either way, investing in yourself will pay for itself in the short run and for years to come.
Here’s to a Prosperous 2016!
While the options described above may not be as much fun as going on a shopping spree, choosing one or more of them can put you in the right position for long-term gains. And you may even be able to afford that shopping spree after all!