Knowledge Hoop

Last week’s post was about avoiding tax refund anticipation loans.  Typically, the individuals that would apply for this service are those that expect a sgnificant refund.  In addition to a federal refund, if you pay state income taxes, you will likely receive a refund from the state as well.

Each year, many of us have an opportunity to receive lump sum payments for tax refunds, bonuses, or other types of settlements, but we often don’t have an objective or mission for the funds received.  To be truthful, most of us can’t even account for how the funds were spent.  If you are anticipating a lump sum payment of any kind this year, consider the following:

Pay Yourself First – Commit to saving 10% of the total lump sum amount.  According to a study performed by Insight Center for Economic Development, people of color are five times less likely to have a bank account than whites. If you are not a disciplined saver, I recommend restricting access to this money by depositing the funds into a Certificate of Deposit (CD).  A CD is a type of account that yields a higher interest rate than most savings accounts, and requires that your initial deposit is invested for a fixed period of time.  Please note that most banks will charge an early withdrawal fee if the CD is redeemed before its maturity date.  We all have to start somewhere; this deposit could very well be the beginning of your ‘rainy day’ fund.

Pay Off Debt – Paying off consumer debt can be an overwhelming process, and there are several valid ways to approach it.  In my opinion, the “snowball effect” is one of the most motivating ways to achieve your goal.  This method requires you to pay off the smallest balance first.  Once the debt is paid in full, you then apply the payment that you were making for that account to the next balance.  Although you may pay more in interest, the sense of accomplishment will help keep you committed to your goal.

Complete a Home Improvement Project –   Consider completing a home improvement project that will add value to your home.  If you are in a depressed market, be realistic about how long it will take to recover your investment.  Ultimately, kitchen and bathroom upgrades often offer the best bang for your buck.  By the way, you don’t have to limit your projects to the interior of your home; exterior projects not only boost the value of your home, but they may also help in increasing the value of your neighborhood as well.

Prepay for Lessons or Camps for Your Children – Summer will be here before you know it, and we’re all familiar with the saying, “An idle mind is the devil’s workshop.”  What plans do you have for your children this summer?  If you haven’t started thinking about this, you are behind.  I can’t tell you how many times I’ve heard parents say that they can’t afford to pay for summer camp or other enrichment activities for their kids.  I will admit that this line of thinking frustrates me because these comments often come from parents who have received lump sum refunds or spent money on the latest video game during the Christmas holiday.  If you child is spending their summer at home without any enrichment activities, you should really examine your parenting skills.  I urge you to take a portion of your funds and make an investment in your children.  If you start now, you may qualify for scholarships or reduced rates.  Ultimately you won’t know if you don’t try.  Most programs have filled up by March or April.  Don’t wait; begin your research today.

I hope this Post has been helpful.  Keep in mind, if you always do what you’ve always done, you will get the same results.  Living a reactive life requires no effort on our part, but it takes focus and discipline to be proactive.  The options listed above can assist you in starting a journey toward a life lived on purpose.