$3,000 is nothing to sneeze at. It’s a big chunk of change. If you suddenly got a check for $3,000 how would you spend it?
I think most of us would answer a vacation, a new high definition ultra-thin television, maybe a down payment on a new car, or an upgrade to a hip new phone like an iphone. Ultimately we would spend that money on one or two luxury items that we can’t normally afford in our day to day lives.
While such indulgences would make us happy, ultimately that happiness would be gone and we’d be right back to where we started-living month to month, paying the bills and spending whatever money we have left over living life.
Unfortunately this is the most common scenario that will play out for Americans over the next two months. Millions of American households are expected to get a tax refund around $3,000 this year. No matter how good you are with money, when you get a check for that much money your first thoughts tend to be about treating yourself. This year I’d love it if you treated yourself in a way that will leave you happy today and happy down the road. Let me tell you what I mean…
Your tax refund is made up of money you should have had included in your pay check all year round. So it’s ok if you spend some of it on something you want. It’s unrealistic to deprive yourself forever. But instead of diamonds or the latest, greatest television set how about buying yourself something that will actually pay you back.
There are three major appliances in your home that account for a large chunk of your monthly utility bill; your refrigerator, clothes washer and dishwasher. If any of these appliances are more than a decade old, you’re utility bill is higher than it should be. Older appliances are huge wasters of electricity. Modern, high efficiency refrigerators use less than half the energy its predecessor did a decade ago. Not only will they use less energy and reduce your monthly utility bill, but today’s best clothes washers and dishwashers use a lot less water and can reduce your monthly water bill as well.
Another thing you can buy yourself is an early release from making mortgage payments. Imagine how much less stress you’d have in your life and how much fuller a life you could live if you eliminated this debt. Did you know sending in just one extra mortgage payment a year can save you THOUSANDS of dollars per year and shave several years off the life of your loan? It’s true.
A homeowner who has a $300,000 mortgage loan with a secured six percent interest rate will end up paying over $347,500 in interest over the life of the loan. That’s on top of the $300,000 mortgage. After 30 years that means this homeowner will have paid the bank a total of $647, 500 (what’s even scarier is that I’m rounding down here. The actual amount would be even higher!).
Now if you sent in just one extra mortgage payment per year you would lower the amount of interest you pay over the life of the loan to $276,591.12. That’s a saving of over $70,000. Wow. Even better is the fact that not only do you save yourself that HUGE chunk of change, but you also reduce how long it takes you to pay off your loan. This homeowner would also shave off five years of loan payments. It would only take him 25 years instead of 30 to pay off his home!
The earlier you are in your mortgage the more you can save. Figure out how much you can save and how much earlier you can pay off your mortgage by using a free mortgage calculator on the web. Type in mortgage calculator into any search engine and a litany of free ones will pop up for you to use.
Know what else will pay you back? Paying off a credit card or other higher interest debt. Every month that you have to take a portion of your paycheck and send it to a credit card company or bank means you have less money to spend on yourself and doing fun things. Just think of how you could be living if you eliminated this debt from your life! Plus eliminating debts like these will boost your credit score which means you’ll be offered lower interest rates and better terms anytime you apply for a car or mortgage loan. Use your tax refund to eliminate any high interest, bad debts from your life and use the extra money you would have had to send to those companies to do more of what you want.
The first day of spring is March 20th this year and the first day of summer is just three months after that. Very soon here we will be flipping the switch on our furnaces to blow cold air instead of hot air. Many of us worry each year that when we flip that switch nothing will happen. That’s the worry if you have an older furnace or A/C unit. This year instead of worrying or praying that your unit will make it another year, use some of your tax refund to do some home improvements that you have been putting off for the last several years. Call a technician in to service your heating and cooling units. Or get new weather stripping put in around your doors and windows.
Maybe you are at the tail end of the life of your roof. Instead of finding out all of a sudden you need a new roof and then wondering how you are going to pay for it, use your tax refund to make the necessary repairs. The recession has caused many of us to push back our home maintenance plans. Use this little windfall to take care of those issues now instead of waiting till they damage your home and possibly cost you more money in further damages.
Another thing you might have put off since the recession hit is starting or contributing to a college plan for your children. Depositing a couple thousand dollars into a 529 college savings plan will get you on the road to providing the kind of future you’ve always wanted to give your child. Over time that couple thousand dollars can grow to much more and provide your child with enough money to cover a lot of their college costs. Any money you deposit now can be withdrawn tax free for higher education purposes down the road. Plus, some plans come with additional tax benefits. Check out the benefits for plans in your state!
The absolute best thing you can do is invest in your future. Contributing to your retirement accounts will pay off dividends down the road. The more you contribute now, the more you’ll have to live off of down the road. Heck you might even be able to retire earlier depending on how much you deposit and how much your deposits grow to.
Another way to invest in yourself is to take your tax refund and put the money towards starting your own business. You wouldn’t be reading this letter if the thought of being your own boss, making more money, or working from home never crossed your mind. The money you get back from Uncle Sam can be a great start towards all of those things. Dreams never come true unless you start working on them and your very first step could be your tax refund. Watch your inbox this week for a business opportunity from League of Power that could get you started down the road to riches.
Keeping Money in Your Pocket,