How to Spend Your Tax Return Wisely (One Mistake to Avoid at All Cost)
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When I worked in the banking industry, I can’t tell you how many people used to bring in their tax return and cash it. This was before direct deposit was a trusted method of receiving funds.
Remember when everyone thought they needed to have a paper check in-hand for the money to actually exist?! I’ve compiled 9 ideas on how to spend your tax return wisely.
One Rookie Tax Return Mistake to Avoid at All Cost
All of the big income tax preparers offer expedited, or instant refunds. It can be tempting to try to get your tax return money fast and sign up for this offer. Don’t do it. You’ll end up paying astronomical fees similar to payday loan rates, and it’s just not worth it.
You’ve gone all year without your tax money, so what’s another two weeks of waiting to receive it?
Don’t get sucked into paying ridiculously high rates to receive your money a few days earlier.
According to the National Consumer Law Center:
Since the main purpose of an H&R Block Refund Anticipation Check is to defer payment of the tax preparation until the refund arrives, it can be viewed as a high-cost loan of that fee. If a taxpayer pays $30 to defer payment of a $200 tax preparation fee for 3 weeks, the annual percentage rate (APR) is 260%. Two courts have held that a RAC constitutes a loan of the tax preparation fee, and thus the fee is a finance charge under the Truth in Lending Act.
TWO HUNDRED AND SIXTY PERCENT, Y’all!! How they get away with this is beyond me! Stay away from the rapid refunds!
How to Spend Your Tax Return Wisely
The problem with cashing your tax return check is that you probably already have it earmarked as “blow money” also known as money you’re planning on spending on all of the fun things you’ve wanted but haven’t had the money for this year.
1. Invest in Yourself Through Personal Development
Personal development is so important. I never realized the importance of continuing education and even mindset until I became a Beachbody coach. Y’all know from my previous posts about why I quit Beachbody coaching that I am not on board with multi-level marketing as a business ‘opportunity’.
But the one good thing I learned from that experience was that personal development and mindset are everything.
You can’t grow your income and your bank account and help others if you have a bad money mentality or if you think you already know it all.
I can promise you…you don’t have it all figured out. And neither do I.
A very easy way to start growing personally and professionally is to start listening to audiobooks regularly. Audible used to be my preferred method of personal development, but I now listen to audiobooks through the Scribd app. It is cheaper (priced at just $8.99) and you get access to unlimited audiobooks and ebooks all the time. There is no limit to the number of books you get to read/listen to!
Friends, it is so important to take a few minutes each day to listen to something inspiring. Right now I’m listening to You Are a Badass at Making Money by Jen Sincero. Since I’ve started listening to it, my mindset has had a major shift and coincidentally, my income has doubled.
You can check out my January income report here, and I’m on track to double my income this month. Take $9 per month out of your income tax return and spend it wisely on your personal development. Trust me. It will change your life.
2. Invest your Tax Return to Make Money
According to Your Money Geek, every year across America, households grapple with how to invest their tax refund. The first item to determine is if you got the maximum tax refund you could have.
Every year thousands of household miss out on lots of tax credits because they incorrectly assume the refund the received was the maximum possible. Most taxpayers sadly wait until tax season, mid-Jan to April 15th to plan their taxes. As such they miss out in the tax planning maneuvers that must be completed by Dec. 31.
Before investing, create a tax budget now for 2019. Print off a list of all the tax incentives you may be eligible for and consider what actions are necessary to maximize your tax planning.
Once you have a tax plan in place, consider if your emergency fund needs a boost. Before considering any long term investments, or placing your money at risk, ensure you have a financial emergency preparedness plan in place.
You may find once you established your own side business than investing in other companies or the market in general losses its appeal. However, you may not want to leave your finds in the back earning virtually nothing either. So you may consider Indexed Annuities and Modified Endowment Contracts as an alternative to traditional banking products.
3. How to Spend Your Tax Return Wisely on Starting Your Side Hustle or Business
Now is the time, while you have extra cash, to invest in launching your business. Whether that’s getting licensed in real estate so you can flip houses or sell homes, starting a blog, or starting your YouTube channel, there is no better investment than entrepreneurship.
I actually make money through all three of these ‘side hustles’. I make money every single day on this blog and my YouTube channel. I also sell real estate. In fact, I have a closing tomorrow, on Valentine’s Day, and I’m taking home $3900+ for showing a few homes, writing a contract, and working my buyer through his purchase.
4. Real Estate-
Real estate costs close to $2,ooo to get started, in real estate course fees, annual dues and membership fees. So, while it is the most costly of my businesses, it brings pretty great returns.
Blogging takes a small investment but is definitely worth it as I’m on track to make $1,000 per month. You can start blogging and write/publish/promote around your current work schedule while building your income. It’s been a fun ride, and even though I’m not selling anything on my site, I make money through affiliate marketing, display advertising, and sponsored posts.
6. Affiliate Marketing-
One course I recommend if you’re interested in learning about affiliate marketing is Making Sense of Affiliate Marketing. Michelle makes over 1 million dollars per YEAR on her blog, and I have seen an increase in my income due to taking this course.
But if you don’t even have a blog yet, you’ll want to start by creating your own blog. I’ve written a post about how to start a money-making blog, and you can get started for just $3.95 per month. This would be one of the best investments you could make with your tax return money because you could be earning income from your blog within a couple of months.
I just monetized my YouTube channel and am making about $200 per month right off the bat. I share the sober truth about money, blogging, and business on my YouTube channel, and I plan on growing even more in 2019.
You’ll need some equipment to get started, but you don’t have to spend an arm and a leg. I chose to invest in this video creator kit and was able to make professional-looking videos using iMovie for free on my iMac at home.
One thing to consider is with YouTube, you won’t be making money right away. You have to grow to 1,000 subscribers and have 4,000 hours of watch time on your channel before you can monetize. That being said, it was fairly easy to accomplish this (surprisingly).
If you’re like me and wish to have multiple streams of income, I’d suggest looking into blogging and YouTube to start.
Don’t worry if you don’t have your domain name (aka url) figured out just yet. You can always choose it later (for free). You can also send me a comment or message if you want help/ideas choosing a domain name! I’m happy to help!
So far I’ve given you several ideas on how to spend your tax return wisely, but I’ve got more!
8. Use your Tax Return to Get Out of an Upside Down Car Loan
If you are currently upside down on your car loan, meaning you owe more than the car is worth and are dealing with negative equity, using your tax return to pay the difference and get out of it is a great financial decision.
I get so many comments on this video from people who financed way too much on a car loan and just cannot afford the payments. The best time to pay your negative equity is when you have cash in hand. Sell the car and buy something much more affordable. Then you can focus on paying off debt and living a better life!
9. How to Spend Your Tax Return Wisely to Pay Off Debt
Can we all agree that debt in America is a scary, scary epidemic!? People are all but sacrificing their children’s future to show off their prized possessions to people they don’t even like.
So how is the best way to pay off debt with your tax return? Well, my husband and I are receiving about $2,500 back this year. The lovely $24,000 standard deduction is working out in our favor, so we are using the money to pay off debt.
We like to use the debt snowball method of paying off debt, and it just so happens this year, it’s working out in our favor. We will be freeing up hundreds of dollars each month. Here’s how we’re doing it:
- We owe $1,000 on a credit card that has a minimum payment of $60 per month.
- We owe $3,100 on a HVAC system for a house we sold two years ago, y’all….zero percent interest for 4 years and we are using the money to pay this off (along with some extra funds leftover after paying all bills this month). This payment is $245 per month.
This means between the two debts, we’re paying off $4,100 in debt and freeing up $305 per month! I know it seems silly to pay something off that is zero percent interest, but y’all…..we are freeing up so much income to use for other things! This is a blessing, and we’re running with it!
We use this debt snowball spreadsheet to keep up with our progress, and you can have it for free. Just enter your email and I’ll send it right over. It’ll help you to see the big picture.
I’ve done all the things! Girl, I’ve washed my face. I’ve trashed everything that doesn’t spark joy. I’ve walked the baby steps. I’ve cried. I’ve prayed, but my perfectionism has really held me back.
Perfection Hangover can be crippling. Stop comparing yourself to others and start living your best life! That’s why PH exists! I want to encourage you to take control of your money, your blog, and your business.