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8 Ways To Get The Most Out Of Your Tax Return

There’s an old saying that goes, “A bad map will make you miss the whole party.” A lot of us are lost financially because we have been following bad maps all of our lives.

The wealth-building party is going on and we want to get there, but we just can’t figure out how to stop driving in circles. We’ve watched generation after generation park on Debt Ave only to repeat the same mistakes and end up in the same place.  

With the help of a solid financial coach, you can begin to thrive financially starting this tax season. Here are 8 action items that we recommend to our clients.

Build An Emergency Fund There is no reason an adult should not have an emergency fund of at least 3-6 months of expenses. If you do not have one, use your tax refund to put one in place. We recommend starting with $1,000 and going from there. Make sure it’s in a separate, but accessible account so that you aren’t tempted to use it on a daily basis, but you can get to it during an actual emergency. Emergencies have 3 characteristics:

  • They are unexpected. Christmas is Dec 25th every single year and school starts in August. Neither of these hot shopping times should catch you by surprise. Don’t mistake poor-planning for unexpected.
  • They are absolutely necessary. You need your car to get to work, so, by all means, pay for unexpected repairs. The latest iPhone? Not so much!
  • They are urgent.  A trip to urgent care is urgent. Macy’s semi-annual sale is not what we are looking for here.

None of us can control the future, but we can do our best to be prepared for it. If 3-6 months of living expenses is a lot to save, then it’s also a lot to have. 

Take care of the “4 walls”. The “4 Walls” are: housing, food, clothing, and transportation. They can be summed up by calling them the basic necessities. If you are behind or lacking in any of these areas, use your tax refund to get caught up.

Also, transportation does not mean go out and buy a new car. Transportation means if there are some issues preventing your primary method of transportation from working effectively, get it taken care of.

The same logic applies for clothing. You don’t need the latest and greatest, however, you want to make sure your needs are met. You don’t want to waste this opportunity to finally get ahead by putting yourself even further behind because you went overboard on spending.

Pay Any Legal Fees. One thing you do not want to do is mess around with any pending legal matters. From traffic tickets, to court/attorney fees, etc, make sure you are in good standing. Settling your legal matters will provide you with much more peace of mind over time.

Go see a Doctor/Dentist. Often times we focus on our finances and use that as an excuse to neglect our health. That is some pretty flawed logic.

What good is wealth if you can’t enjoy it because you trashed your body and never took the time to go get a physical? Some insurance plans even cover at least 1 physical per year.

Check with your provider to see which services are included in your plan, and make the necessary appointments to learn about your health.

Pay off current debt. How cool would it be to get paid on Friday and not owe anyone any money for anything? Think of the businesses that you could start, the level of giving that you could achieve, the vacations you could take, and the peace of mind that you would have if your money was just that- yours!

Now on the other side, how would you feel if you were to lose your job tomorrow? Would it be a fearful time, or would you be able to remain calm because you knew that you had an emergency fund in place with no debt?

I’ve faced that situation with $61,000 worth of debt, and I can tell you that it wasn’t the most fun I’ve ever had. Debt robs you of your peace, so focus on eliminating it from your life altogether. Don’t be a hostage in your own home.

Deal With Collectors. Debt collectors are usually willing to work with you as long as you communicate and remain honest with them. Instead of spending another year dodging collectors that are only looking for the money that you promised to pay, how about giving them a call and working out the details of a payment plan or agreeing on a settlement amount?

If you are able to negotiate a settlement, make sure you get it in writing before you pay, and never give out electronic access to your bank account.

Any time you speak with collectors, you want to make sure that you are keeping good records. Take good notes on every call, and send any necessary correspondence through certified mail with a return receipt. Take control of the situation instead of letting collectors control you.

Open A Brokerage Account A brokerage account is a type of account through which you can own stocks, bonds, mutual funds, ETFs, index funds, and other assets.

In order for you to build wealth, you must begin to allow compound interest to work for you over the long-term. A great step would be to open and fund a brokerage account and start investing once you’re out of consumer debt. 

Fund a Retirement Account It’s pretty well-documented that the average American does not save enough for retirement. We recommend directing at least 15% of your annual, pre-tax income into various retirement accounts. This can be a 401(k), Traditional IRA, Roth IRA, etc. There are income and contribution limits, so you’ll want to do a little research before you just dive into one, but a great utilization of a tax return would be to begin funding your dream retirement.

In order to change your position in life, you must change your perspective on life. Being a good steward of your finances will not only impact you today, but it will guide you towards building a greater legacy tomorrow. If you need assistance getting started on any of these steps, book an appointment with us below.

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