It’s that time of year again. For some, it’s a time of joy and reflection on all the possibilities. For others, it’s a time to pound the nails, grit your teeth and think about how to come up with the money. If you plan well, do business, or are lucky, tax season can be a good time to get your personal income tax refund. I myself have gotten thousands of dollars back in cash this year. If you have extra money at tax time, you may be wondering what to do with it. It is indeed possible to use your personal tax refund to earn even more money through the effect of compound interest.
Don’t equate this with ordinary people. Ordinary people take their personal tax refund and use it to go into debt. They buy things they don’t usually need, like boats, televisions and unnecessary clothing. If you want to manage your personal finances better, a personal tax refund is a good place to start. The interesting thing is that if you invest and spend the money correctly at first, you can then buy all the yachts, televisions and clothes you want. If you spend your money wisely, the benefits multiply.
Five ways to make your money grow with your personal tax refund.
1. Pay off debt
This may seem obvious, but not everyone can do it. Some of my past clients have considered their personal tax refunds as extra money, even though they owed thousands of dollars. For example, let’s say you have a department store card with a 28.8% interest rate and you pay a minimum balance of $50 per month. By putting $2,000 on that card, you would save $12,481.62 in interest; at $50 a month for a $2,000 balance, you would have 300 months to pay off that card. In my opinion, it is worth using this card to generate income.
It depends on what you mean by investing. You can supplement your workplace retirement contributions or invest in investment funds. You can receive a personal tax refund and invest in paper securities such as stocks and bonds. If you are not satisfied with current market conditions, you can leave your money in a high-yield bank account or buy GICs. The idea is to let your money work for you rather than spending it on necessities. To continue the example: If you invest $2,000 in a mutual fund with an annual interest rate of 8%, you will have $14,680.35 after 25 years. That’s more than seven times the value of your initial return. I like these figures.
3. Buy or start a business
This offer is not for everyone. Most people I talk to seem to have major concerns that they don’t have enough time to start a business or what a business is. In fact, there are many types of businesses you can start part-time. Currently, I run a sales business and an internet marketing business as my primary business. You can. Here are some business ideas.
- Vending machines
- Online marketing
- MLM businesses
I chose the above mentioned areas because I thought they could all be done part-time and with minimal costs compared to other areas. Most MLM businesses offer excellent training and coaching. Usually for a few hundred pounds you can get all the training and resources you need to get started. I can also tell you from experience that you can run an online business for less than $100 a month. Do some research and see what you like?
4. Buy a property
The basic idea is to use the money from your personal tax return as a down payment on a rental property. Rent it and have it paid for by yourself. I offer this option because that’s exactly what my wife and I did: We received enough of our tax money to make a 5% down payment on a four-unit house worth $420,000. The rental income is about $37,500 a year. We invested a lot in Level 3, so we also got a lot of taxes back. Having your own business has many tax advantages, especially if it is a home office.
5. Pay off the mortgage
This step is very simple. Your personal tax return should go directly to the mortgage principal, if you have the ability to do so. I would only recommend this if you have no consumer debt – a 5% refund doesn’t make sense if you have 18% debt. By investing directly in the principal of your mortgage, you can save thousands of dollars in the long run.
There are many different ways to use your personal tax income. Like everyone else, you shouldn’t spend your money on things you don’t need. If you can afford it, absolutely. However, statistics show that only about 5% of people can afford it. Tax returns are a great opportunity to gain financial benefits if used wisely. Find the method that works best for you and use this opportunity as a springboard to financial success.
Villie Walters Ramirez is a 32-year-old Personal Tax Planning assistant at a taxation firm who enjoys Tax Return NYC, accounting and bookkeeping. She has a post-graduate degree in accounting, and she has a severe phobia of cats. She enjoys travelling A lot.