How Are You Spending Your Tax Refund?

Refund Coming at Tax Time!
[republished from last month for Tax Day]
Have you received your refund yet? What are you planning to do with it?  Are you going to pay bills?  Take a vacation?  Save it?  If you’re not sure what to do with it, here are some smart ideas for what to do with your tax refund.

Create an emergency fund

According to a recent Bankrate survey, about 3 out of 10 Americans do not have an emergency savings fund.  These funds come in handy when you have home, car, medical and other unexpected expenses for which you have not budgeted.  Financial experts recommend saving up to six months’ worth of your regular monthly bills.  By doing so, you will have a safety net if you lose your job. For the last few years, my wife and I treated our refund as “found money” and put it in a savings account.  This came in handy when we needed to replace an A/C unit.

Pay off debt

Many Americans are swimming in debt.  If you’re struggling with this, consider using some or all of your tax refund to pay off high-interest credit card debt. Once you have cleared it, you can focus on your lower interest debt.

If you are behind in your loan and credit card payments, be aware that collection companies ramp up their efforts this time of the year.  They know that many people will be receiving refunds.  Prioritize your debts if your tax refund won’t be enough to completely catch up on your delinquent payments.  Your house, car, and tax debt payments should take priority.  Once we determined that our emergency fund was sufficient, we began applying extra to our debt.

Save for retirement

It’s never too early to start planning for retirement.  If your workplace offers a qualified retirement plan and allows outside contributions, consider putting some or all of your refund in it.  If your employer matches your contribution, you’ll double your tax refund money.  You may want to open a traditional or Roth IRA if you don’t have a workplace retirement plan.  Consult with a financial planner to determine the best retirement vehicle for you.

Save for your children’s college

Consider opening a 529 college savings plan.  Although your plan contributions aren’t deducted from income for tax purposes, you won’t pay taxes on the distributions when you withdraw the money to pay for college expenses.

Make estimated tax payments

If no taxes are withheld from your income, consider allocating part of your tax refund toward your estimated tax payments.  This will help you avoid paying taxes when you file your taxes in 2017.

No matter what you decide to do with your tax refund, sit down and think about your financial goals.  Then decide how your tax refund fits into your plan.  If you can, treat your refund as “found money” that you can apply to any of the items above.  It’s served me well for many years.

What are your plans for your refund?

Is Your Plate Too Full to Play?

Full Plate Color characters

Many people see this moment of clarity as stressful or even depressing, but in truth it’s the opposite… provided that you’re looking at things from the right angle.

All Work and No Play Makes Jack a Dull Boy

An old saying tells us that “if you truly love what you do, you’ll never work a day in your life.” There is perhaps no better example of this than baseball. Most Major League Baseball teams play 162 games per year – but for the average player, their “work day” is a lot longer than just the three or so hours you see on TV:

  • Training is a massive time commitment that also happens to be physically and emotionally exhausting.
  • They have to practice harder and harder every day, less they lose those qualities that got them to the big leagues in the first place.
  • Many players live in a constant fear of getting traded to another team and not everyone signs those $25 million multi-year contracts.

Being an MLB player is a lot harder than you think… but despite that, it’s a dream that many work tirelessly to achieve every year. At the end of the day, it’s all worth it because the pros have found a way to make the ideas of “work” and “play” one and the same.

If You Love Your Job, Everything Else Falls Into Place

None of this is to say that everyone should just try to become a Major League Baseball player and all of their career troubles will be over. But it does underline the importance of making sure that your plate is never too full to play – because without that sense of fun, excitement and passion, what do we really have?

Which cartoon is better?

I’m curious, which version of this cartoon do you like better – with or without a photo background?

Full Plate PhotoFull Plate Color characters

I appreciate your feedback!

Fooling Your Mind to Get What You Want

Woman with closed eyesIf you’ve spent any time reading, listening to, or viewing personal improvement materials, you have likely learned about the power of the mind. One of the early classics, Norman Vincent Peale’s “The Power of Positive Thinking,” focused on positive thoughts to help create the life readers wanted. He wrote the book back in 1952. A more modern take, “The Secret,” was written in 2006 by Rhonda Byrne. Her efforts explored visualizing what you want and having your desires manifested in the real world.

There are those who dismiss the power of the mind in accomplishing goals. I happen to think there is value in fooling the mind to get what you want. Let me give you a couple of examples.

The Basketball Players

Let’s take two equally skilled basketball players. Both are wearing headphones and standing at a foul line. Each will shoot 100 free throws. Everything is equal except what is being piped through their headphones.

The first is hearing messages such as, “Up and in,” “Nothing but net,” “You’re the best basketball player ever,” and “You are feeling good and looking good.” The second player is hearing messages such as, “Your arms are heavy,” “You are tired,” “The basketball weighs a ton,” and “You have no skills.”

All things being equal, you have to imagine that the first player would hit a higher percentage of his shots.

The Placebo Effect

My other example would be from the world of science — medicine, to be exact. In controlled studies, some patients are given actual medicine while others are given sugar pills, or placebos. In many cases, patients who are given these placebos show improvement. The medical community calls this the “placebo effect,” and it is an accepted phenomenon. The patients are fooled into thinking they are taking actual medicine and believe it is helping them. They experience results that are seemingly illogical.

Fooling Your Mind

Whether you call it visualization, positive thinking, encouragement or fooling the mind, it amounts to mentally preparing for success. The more you do it, the more valuable it becomes. It can be so powerful, you may have to be careful about the things for which you hope.

It is why clear-cut, specific goals are so important. Stating, “I don’t want to have to work after I’m 50,” can be accomplished in ways that are undesirable, such as through an illness or an accident. You will be better served by being more specific. “I want to be financially and physically healthy enough at 50 years old to do what I want when I want to do it” may be a better goal to ultimately get you the results you want.

You probably already use techniques to fool the mind. You may tell your kids, “Don’t worry; everything will be all right,” even if you are not quite sure. You may have told them, “You can do it,” to get them in the proper mental state. You may have received similar encouragement from a friend or family member.

It is not always easy to be positive or to visualize success in failure. Fooling the mind, at times, can be challenging. It is, however, a terrific way to help you get what you want.

Does a Renovation Make Financial Sense?

African American couple renovating home interior.

Home renovations are no small endeavor – no matter what they try to tell you on the home improvement networks. There are some situations, though, in which home renovations make financial sense and others in which they do not. Knowing the difference can save you a lot of personal and financial pain. These are a few questions you should ask before diving in that will help you make a wise decision.

How Will You Finance the Renovations?

If you have cash savings to fund the renovation or choose to go with a with a traditional, low interest loan it is a far different story than if you’re going to finance the work with credit cards or borrow from retirement funds. In order to determine how financially worthwhile the project is, you must be able to accurately predict (or at least closely estimate) the final costs of the project.

Interest rates on credit cards and cards from home improvement stores add up quickly and can easily become the expense the keeps on giving long after the renovation is complete.

If you’re thinking long term, think home improvement savings plan. This will allow you to set money aside each month to go towards things like improving your home cosmetically or taking care of emergencies that arise with heaters, air conditioners, roofs, or appliances along the way.

Who Will be Doing the Labor?

This is a multi-faceted question. If you’re planning to do the labor yourself, you can save a great deal of money on the renovation project – if the laws in your municipality allow for you to do the work yourself. Throughout California, for instance, there are a few things you can do on your own, but for the heavy lifting, you may need a licensed contractor to complete, or at the very least oversee, the work.

The other side of the coin to consider is that if you’re not confident of your abilities and press on trying to do it yourself, make sure you have room in the budget to correct mistakes you may make or replace items that may get broken in the process.

Some renovations typically provide a better ROI (return on investment) than others. Dollar for dollar, kitchen and bathroom renovations generally do well as do adding rooms or family rooms to the home.

Maximize the potential of your investments by choosing fiscally responsible updates. Rather than going for granite countertops, for instance and tearing down walls, consider a fresh coat of paint and quartz or other hard-surface countertops instead. Bigger bang. Lower costs.

If you plan carefully, and choose wisely, you can make renovations work well for you. Always look for renovation projects that raise the value of your home – especially if you’re planning to sell the home in the not so distant future.