As I write this, today is the day for me to go file my annual taxes. For me it’s an event that always has a certain degree of anxiety and frustration. Getting all the docs together, then having to hear the bad news. Not if, but how much, I owe. I’m self-employed so I’m always making tax payments.
Have I told you how much I hate taxes?
The average tax refund is around $3,000. If you are lucky enough to get a refund. That may not sound like a lot, but there are some interesting ways to leverage that return.
How do you leverage, give or take $3,000, into something more? Take a look:
1. Do a financial plan. You know I never resist to tell you about the benefits of financial planning. According to NAPFA (National Association of Personal Financial Advisors) the average financial plan runs about $2,000 to $5,000. So your refund is right in the wheelhouse! By spending those dollars to have a plan prepared, it will make you much more knowledgeable about your complete financial picture. It will show you where you have some shortfalls or even save you money. This would be an excellent way to spend this year’s refund.
2. Pay off debt. Need I even say this? If you have some nagging bills like we all do, why not get rid of them? That left over medical bill or even some holiday bills. Pay off any debt or apply the money to a larger debt that is charging you interest. Your best bet would be to apply this to the highest interest debt that you have. Typically a credit card. This will save you thousands of dollars over time, and is a great way to leverage your tax refund.
3. Contribute to a Roth IRA. A Roth IRA is an IRA that the contributions are not taxed once they are removed. As long as you meet a few criteria like keeping the Roth for 5 years. So with a Roth you’ll get tax free growth and tax free withdrawals. So your tax refund could be leveraged to achieve tax free money for retirement. Depending on how long it’s investing this could be a nice little nest egg. Leverage!
4. Buy a Long-Term Care policy. The average refund I mentioned will probably only buy one long-term care policy. However, having a policy on yourself or even your elderly parents could be very beneficial. The average long term care stay is about $60,000 in Kentucky…per year! So the policy you select could not only take care of you or a parent, but also protect financial assets from the devastation of a long term care stay.
5. Take a course on personal finance. Most of your local colleges and community colleges offer courses on various personal finance topics. An investment in knowledge always pays dividends. What better way to leverage your tax refund that making yourself smarter about your money? Some of these classes could be offered at a local community center or a public library for free!
6. Start an emergency fund. Your tax refund probably won’t fund this account completely. However, if you don’t have one, or a very small one, it could really benefit you. Having an emergency fund will keep you from tapping credit every time the car breaks down, or there is a badly needed fix at your home. Potentially saving you loads of greenbacks from not going into debt. Another way to leverage your refund.
7. Start your own charitable foundation. It really doesn’t require that much money to start your own charitable foundation. You literally can do it for any person or cause that is important to you. You can use your refund to benefit the needs of others. Spend a little of it to advertise your foundation and get additional donations. Who knows you could be a great philanthropist like Warren Buffet or Bill Gates!
This is not a complete list, but a creative one. Each suggestion can really leverage the tax refund dollars substantially. If you liked my article, why not subscribe for free right here! My virtual paperboy will miss your porch, but hit your email inbox every Friday.