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10 Smart Things You Can Do With Your Tax Refund

10 Smart Things You Can Do With Your Tax Refund

It’s that time of the year again and you’ve been pretty diligent with your taxes, so you find yourself with an extra $2000 on your hands and you start wondering what to spend it all on. People often get confused when they get a relatively large sum of money and end up spending a good chunk of it without really knowing where the money went.  Well, spending your tax refund might be pretty easy, but it if you want to use this money wisely I suggest you take a look at some of options listed below.

Figure standing on money

    1. Pay off school loans

    Student loans can affect your life plans and even your partner’s plans for that matter. These loans can never be discharged, even in bankruptcy, and if you delay paying, your tax refunds can be seized, wages garnished and credit ruined.  Of all the debt you may have to pay, student loans should take top priority.  For young married couples, the problem can be doubled if both have student loans. Even if you are currently single you’ll want to pay off your student loans as quickly as possible, so you can move on with your life and worry about more important things.

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    2. Enhance your child’s college fund

    It’s never too early to start thinking about the future and when it comes to giving your child the best education you can afford, it’s good to start planning well in advance. A thousand dollars can be a nice starting point and help you get the ball rolling, so to speak. Check out your state’s 529 plans.

    3. Put it in your savings account

    Putting money into a savings account allows you to have peace of mind. When faced with potential problems and emergencies you will feel a lot less stressed out if you know that there are a couple of thousand dollars sitting on your account. Major home or car repairs, injuries, or an infestation in your home can come at the worst of times ,and having that little extra money saved for rainy days will reduce your stress immensely.

    4. Focus on big ticket buys

    Instead of frittering your tax refund away on a bunch of insignificant things that will be gone or unwanted in a short time, you can focus on investing in some big items that will last,  like a new fridge, a big screen TV, a new car or even a gaming console for your kid (or yourself). These purchases are good investments since you use them every day and they will last a long time.

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    5. Take a bite out of your credit card debt

    When it comes to debt, an extra $1000-$2000 can really help you move forward and start that debt-destroying tactic you’ve been trying to implement for a while. You’ve probably already discovered that paying just the minimum every month doesn’t reduce your debt by much, if any. Paying off a smaller debt first and then moving on to the next one until everything is paid off is a sound tactic, but with this sudden boost to your funds, you can focus on high-interest debt first and take a huge chunk out of it, saving yourself hundreds or even thousands of dollars of interest in the long term.

    6. Get a better cell phone

    Technology is getting better by the day, it seems,  and staying stuck with an old phone and a mediocre plan is far from ideal. If you use your phone a lot, and most people do, a tax refund can be a great opportunity for you to upgrade to a brand new cell phone and get a cell phone plan that fits your needs. If this means that you can get rid of a land-line phone, or keeps you from needing a laptop, it can save you money in the long run.

    7. Do some house maintenanc

    There are always a lot of things that need fixing around the house, things that we usually put off because we don’t have the time and money to deal with them. A tax refund is the perfect incentive to get some of the work done. You can repaint the house, fix the plumbing, buy some new furniture, get a couple of new lamps for the living room, get a new carpet, remodel your bathroom, improve security with a sturdy front door and new windows, invest in some landscaping, buy more energy-efficient appliances, etc. Your house is probably your largest investment, and taking care of it pays off.

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    8. Invest in acquiring new skills

    Having a range of useful skills doesn’t just look good on your resume – it can help improve the quality of your life or even help you earn a bit of money on the side. If you’ve always wanted to play an instrument or sing you can join a class or go to a vocal coach. Maybe you want to invest in a defensive driving course that will greatly improve your driving skills and lower your car insurance costs.  You could take a cooking course or buy a decent camera and start learning about photography. These skills can increase your enjoyment of life, and might also increase your income.

    9. Invest in your health

    Let’s face it, most of us need to take a good hard look at ourselves and make a few changes when it comes to our health. With some extra money on your hands you can afford to,join a gym, consult with a nutritionist,  and hire a personal trainer.  Maybe you’d like to combine acquiring new skills and healthy exercise by joining a dance or martial arts class. Investing in your health also means fixing your teeth, getting a checkup at the doctor’s office and stocking up on some supplements like D3 and fish oil.

    10. Allow yourself some luxury

    Sometimes you just have to give in to urges and pamper yourself a little, especially when you have a good opportunity to do so. You can use your tax refund to go on a little romantic trip with your partner, wine and dine at some higher-class restaurants for a while, take the kids to Disneyland or anything else that allows you to live life to the fullest and recharge your batteries. This way you are investing in your mental health and strengthening the bond between you and your loved ones. The important thing is to use only a portion of your tax refund on indulgence and dedicate the rest to things that will improve your life long-term.  Finding this balance is the key to enjoying your windfall.

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    People are often tempted to go wild and start spending their tax refund willy-nilly, losing hundreds of dollars on insignificant items bought on impulse. Try to fight this temptation and look into some of the smart options listed above that will help you put that extra money to good use.

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    Ivan Dimitrijevic

    Ivan is the CEO and founder of a digital marketing company. He has years of experiences in team management, entrepreneurship and productivity.

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    Last Updated on September 2, 2020

    How to Set Financial Goals and Actually Meet Them

    How to Set Financial Goals and Actually Meet Them

    Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

    In this article, we will explore ways to set financial goals and actually meet them with ease.

    4 Steps to Setting Financial Goals

    Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

    1. Be Clear About the Objectives

    Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

    It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

    Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

    2. Keep Goals Realistic

    It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

    It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

    3. Account for Inflation

    Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

    Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

    For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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    4. Short Term Vs Long Term

    Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

    As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

    By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

    How to Achieve Your Financial Goals

    Whenever we talk about chasing any financial goal, it is usually a two-step process:

    • Ensuring healthy savings
    • Making smart investments

    You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

    Ensuring Healthy Savings

    Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

    This is the focal point from where you start your journey of achieving financial goals.

    1. Track Expenses

    The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

    Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

    If you’re not sure where to start when tracking expenses, this article may be able to help.

    2. Pay Yourself First

    Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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    Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

    The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

    Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

    3. Make a Plan and Vow to Stick With It

    Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

    Nowadays, several money management apps can help you do this automatically.

    At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

    Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

    You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

    4. Make Savings a Habit and Not a Goal

    In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

    Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

    • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
    • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
    • If you go shopping, always look out for coupons and see where can you get the best deal.

    The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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    5. Talk About It

    Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

    Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

    6. Maintain a Journal

    For some people, writing helps a great deal in making sure that they achieve what they plan.

    If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

    When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

    Making Smart Investments

    Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

    1. Consult a Financial Advisor

    Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

    Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

    2. Choose Your Investment Instrument Wisely

    Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

    Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

    As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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    3. Compounding Is the Eighth Wonder

    Einstein once remarked about compounding:

    “Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

    Use compound interest when setting financial goals

      Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

      Start saving early so that time is on your side to help you bear the fruits of compounding.

      4. Measure, Measure, Measure

      All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

      If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

      Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

      The Bottom Line

      Managing your extra money to achieve your short and long-term financial goals

      and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

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      Featured photo credit: Micheile Henderson via unsplash.com

      Reference

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