SO YOU GOT A HUGE TAX REFUND – NOW WHAT?

Approximately 76 million or 44 percent of Americans paid ZERO federal income tax in 2018.  For the rest of us, about 70% will get a refund. Keep in mind because your tax bracket was most likely decreased for 2018, your refund will be smaller than 2017’s refund.  

WHAT YOU CAN DO WITH YOUR REFUND- TO GROW YOUR NET-WORTH

  1. PAY OFF HIGH INTEREST DEBT

If you have credit card debt, this may be a perfect use for your tax refund. You are most likely paying 18 percent or more interest on credit card debt.  The sooner you pay off that debt the more money you save in interest and you can get to work building your wealth and net-worth. 

See below blog link: FOUR STEPS TO ACHIEVE FINANCIAL FREEDOM BY BECOMING DEBT FREE!

2. BUILD THAT NEEDED EMERGENCY FUND

Most federal employees did not prepare or expect a government shutdown. Especially one that would last five weeks!  As a result many struggled to pay rent/mortgages and put food on the table.

It makes no difference if you are an Amazon package delivery driver or an Amazon executive. If you spend every penny you earn, you will NEVER-build a significant net-worth NOR become financially secure. If you make $XXX, live your life off no more than 80% of your take home pay and save the rest.

It is absolutely CRITICAL to have six-month expenses, emergency fund. We cannot wait for a crisis and then start an emergency fund. Start YOUR emergency fund today!

Two earlier blogs discussed the importance of an emergency fund.

GOVERNMENT SHUTDOWN DEMONSTRATES WHY EMERGENCY SAVINGS IS NOT A WANT BUT AN ESSENTIAL NEED!

EARNING MAXIMUM RETURNS ON YOUR EMERGENCY SAVINGS

3. INCREASE YOUR RETIREMENT DOLLARS

Add your tax refund into your 401-K contributions/IRA. Simply increase your 401-K contributions to add the amount of your tax refund into your 401-K account.  Then use the actual tax refund dollars to cover your expenses. Example:  Your tax refund is $3,000. You earn $70,000 per year and are paid bi-weekly, $2,692.  You normally contribute 10% of your pre tax income to your 401-K plan, $269.23/pay period or $7,000 per year.  Use your tax refund to contribute the $3,000 by increasing your contribution to 65% for the next two pay periods. You will contribute $3,538.46 to your 401-K plan which totals ($3,000 + ($269.23 x 2). Then return your 401-K contributions to your previous 10% contribution. 

SEE BELOW PREVIOUS BLOGS ON 401-K BENEFITS

SIMPLY AMAZING BENEFITS -THE 401-K & ROTH 401-K

401 K – THE MOST AMAZING MILLION DOLLAR INVESTMENT

4.  PAY MORE TOWARDS YOUR STUDENT LOANS

If like my daughter you graduated with student loans, you are probably paying a significant amount of interest on your debt.  Use your tax return dollars to pay down your student loans. 

5.  INVEST IN YOURSELF

Use your tax refund dollars to increase your competency.  Are there training packages or certifications that will help get you your next promotion?   There are numerous on line courses, Community College courses and books to help build your financial literacy. Majority of successful people believe books and reading are the gateway to knowledge. The more you read the more you question things, and hopefully the more open to learning. As Warren Buffettstates, we all should all do more reading and less bad investments!

See below Blog:GUESS WHAT THE WEALTHY ARE OBSESSED WITH? —— READING!

CONCLUSION

I know there is some temptation to treat a tax refund like free money. It feels like Christmas! Right?  Afraid NOT! This is actually YOUR HARD EARNED MONEYthat you gave the US Government as an interest free loan. This is money you could have deployed during the year to grow your net-worth. 

Correct this unintended gift by adjusting the number of dependents on your W-4 Form.

WHAT IS A W-4 FORM?

A W-4 form tells your employer how much tax to withhold from each paycheck.

Your employer remits the tax to the IRS on your behalf.  {Remember Uncle Sam ALWAYS gets paid first! Definitely my least favorite Uncle!}

HOW TO COMPLETE A W-4 FORM?

You probably filled out a W-4 when you started your job, and can change your W-4 any time. Normally your work place (Human Resources) can provide a Form W-4. I also included the below Link:

https://www.irs.gov/pub/irs-pdf/fw4.pdf

The W-4 form comes with an allowances worksheet that will help you figure out how many dependents to claim. To get the most accurate tax withholding, resulting in almost ZERO dollars owed or due at tax time, you have to answer the allowance questions accurately. There is an excellent withholding calculator on the IRS website which will help you precisely determine your allowances and help complete the W-4 to meet your needs.

THANK YOU FOR READING THIS BLOG.  ALL COMMENTS, LIKES AND FEEDBACK ARE APPRECIATED.  SEE BELOW “LEAVE A REPLY” SECTION.  

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DISCLAIMER

I am a proud nerd (my beautiful wife and daughter told me so) investment and finance blogger, with University Rutgers, MBA and Harvard University, Advanced Management.  

I am a successful investor in equities and real estate and happy to share my personal finance and investment lessons learned with you.  I am NOT however, a licensed financial advisor.  Please do not construe my suggestions on this blog, as recommendations for your personal situation.  For individual finance advice please seek your own licensed CPA or financial advisors.  

Powers Investments Management, LLC

This blog will provide, information and simple strategies, that will assist you to achieve YOUR financial objectives and long term targets. For over 30 years, I solved multi-million dollar problems, for Fortune 10-250, companies. My formal education includes: Business, Finance and Chemical Engineering {Problem Solving} at: Harvard, Rutgers and North Carolina State. And an additional 30+ years, managing my family’s investment decisions. I currently manage/advise people with net-worths ranging from the tens of thousands to several million dollars.

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