I grew up knowing that in the month of February I would be getting a special gift and our summer vacations was going to be booked. Being head of household with 2 young children my mother’s Tax refund was always good looking check. By the time I was old enough to say “hey mom can you maybe not send me on vacation and instead save that for my college” she was disabled and no longer qualified for large tax refunds. However she did more with her refund than I can say I saw at the time. Living pay check to paycheck is hard enough, then you receive a large amount of money at once you do all the little things you couldn’t. You but the steak, the bag, the shoes you might even get one for a friend so they know your doing well.
For three years now I have received my own tax refund. The same day I complete my taxes I make a list of where all my money is going to go. I will pay extra on the rent, three months on the car, maybe to the consumer debt. When I finally receive that direct deposit, its an entire different story. Cha ching!! MONEY IN MY POCKET . I sing to myself. I get on automatic guard with myself and start conducting this story. You know the typical what if I die in a year, I might as well buy and do what I want to.
So that is exactly what I did.
- Year one: Vacation for family of three to Dominican Republic, resort and airfare booked. Separate trip to Las Vegas
- Year two: Louis Vuitton Speedy bag, trip to Dominican Republic
- Year three: 2 week trip to Madrid and France.
Now don’t get me wrong theses are all life experiences that I might not have had if I didn’t get the nice check. Well I would have just not yet. But while these trips and bags where being paid. There was separate debt in the background making fun of me. A car note I had no idea would be the worst financial mistake I made. Credit cards, other cards in default sitting in collections, Student loan interest. Each year the problems moved on to the next a simple rollover and not of the good kind. I felt financially free because I did a bit of self-care splurging.
So what different no. I guess that like any problem I admitted I made a mistake. In my culture a tax refund was seen as extra money with no real destination. I grew up knowing it was always going to come so why not enjoy it. I now know that’s not true. It’s not always going to come and many people do not get anything back instead they have to give money. Something that actually did happened to me with the new healthcare laws.
I started having a new love and respect for my money. I also no longer had the I might die in a year mentality instead I know think I might live until 100 I need to be prepared. There are many things I believe are more important to do when receiving money that in unexpected or not part of your budget. These are just a few
- STARTING A SINKING FUND / EMERGENCY FUND
If you know your car won’t get to the extra miles you expected have money saved to be able to repair it without completely changing your budget. Having an emergency fund is also one of the most financially secure things we can do. Start with a simple thousand then slowly build it up to at least three months of expenses. You realize that when you start it’s going to be difficult to stop.
- PAY OF DEBT
I hate credit cards I can’t say it enough. I am a firm believer that an 18 year old should never be given a credit card. Especially without the education needed. So if you have an extra thousand dollars or two PAY THEM OFF. And cut them. You do not want to be doing the same thing next year
- PAY OF THE CAR
If you are able to pay of your car with whatever refund you receive great. If not even putting in an extra grand toward the debt will help out. Even if you are saving yourself a few months of payment those are months you will be able to start saving your money instead of giving it to the bank. Also you cannot sell your car if it has a lean. If your like me you got yourself into a car and no longer use, selling is a great option. But I couldn’t sell it and giving it back to the bank was not an option. Paying it off gives me the liberty to sell and make my money back. At Least some.
- START A 529
Now this one does not apply to everyone but if you are a parent and worried about finances I know that your child education is on your mind as well. Most 529 require a deposit to begin either $500 or $1000. Just like an emergency fund putting in the first deposit is always the hardest. But like mentioned above after you start you become committed and will not want to stop. You might think why not just put money in a savings account? Well a 529 is much more than that. The way it works is very similar to an IRA. The money is put is invested in to mutual fund, and other investment. It is a tax advantage plan. So when your child is on his way to college the money is not subject to taxes. And do not worry; if for any reason your child decided not to go to college your money is not lost. Like many investment products, the withdraw is subject to a penalty when used for non-educational purposes. Usually 10%, But what you have gained will always be more than what you put in. So there is no way to lose. And take it from me who currently has a student loan headache I would have given anything for my mom to have the knowledge of what a 529 is.
- GET TERM LIFE INSURANCE
Now life insurance is a very controversial topic. And I would recommend speaking with a professional that can evaluate your specific needs. I might be bias because I sell insurance for a living. But everyday I see how important starting a legacy for the family really is. Beside term insurance is usually less expensive meaning you might be able to pay for the full year and not worry about it again until the next refund.
- GET TRAINING
Now a day a better pay check is just a click away. Not only that it’s easier to have a passion and do something with it. Pay for a coding class, a couching hour, take a training in your field that will allow you to advance to more money.
- TALK TO YOUR BOSS ABOUT THAT 401K
Having financial security means not being afraid to talk to your boss about what your worth or what they can do for you. See if your company offers retirement plans if not, do your research and take that money to start securing your retirement.
It’s important to take advantage of any money that comes your way. Make sure you know where it is going. The moment your no longer sending your money away to different companies is the moment your money becomes truly yours. There is nothing wrong with going on vacation or buying that bag you saw at Neiman Marcus. There is however a bigger satisfaction when that bags if paid for by money you have saved. Not money that could have gone to giving you financial peace of liberty. Making just one change in the direction of your refund will save your time and money in the long run. Who knows next year you might have already taken care of everything and can take an extra vacation.