Tag Archives: certificate of deposit

Planning for Tax Refunds

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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.

Financial Gift Ideas for Teens

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Last week’s Post focused on financial gifts for young children.  As I reviewed the hits on my blog and the terms that people used in search engines, I realized that a post on financial gift ideas for teens would be beneficial as well.  For most teens, a gift card or money is a welcomed gift, but what happens when you ‘fork’ over the cash?  While I guess it qualifies as a financial gift, in most instances, the gift does not last beyond the holiday break.

 I’ve lost count of the number of times that I’ve heard parents say their teens do not have good money management skills.  As a parent of a young child, I will admit that I don’t have the personal experience of raising teenagers.  However, I do believe that parents often contribute to their teens’ money habits through the act of setting boundaries or giving in to their every whim.  If you’re looking for ways to teach your teens about money and investing, the following gift ideas may be helpful:

Contribute to a 529 Education Savings Plan or purchase a Certificate of Deposit (CD).  If asked, your teen will likely say, “Give me the cash now!”, but this type of monetary gift will serve as a lesson in understanding the ‘big picture.’  As your teen prepares to transition to college, I am a firm believer that they should have some ‘skin in the game.’  Even if you have invested and planned for your child’s education, it’s important that they understand and appreciate the sacrifices you’ve made on their behalf. 

A 529 education savings account is a tax deferred investment account that is designed to help families save for future education expenses.  If you haven’t set one up, there’s no time like the present.  If you decide to purchase a CD, it’s important to shop around.  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.  If you’d like to compare CD rates, bankrate.com offers up to date information on rates and reviews.  Please note that most banks will charge an early withdrawal fee if the CD is redeemed before its maturity date.

Purchase a book on investing and open an investment account.  We often feel that we have to have a lot of money to begin purchasing stock.  I recommend starting small.  Sharebuilder is a great option for someone starting out because there’s no minimum deposit or investment amount.  In addition to allowing you to invest ‘your way,’ the site has a plethora of resources that can assist you in making sound investment choices.  A book that has received good reviews and may be helpful to teens is The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of .  This book along with an initial deposit in an investment account may be a good igniter to help your teen begin investing in their future.

Purchase the Pretend and Play Checkbook.  This gift was featured in the post, Financial Gift Ideas for Young Children.  While your teen may perceive this as a joke, the gift can serve a great purpose.  If your teen is preparing for college, in all likelihood, they will have a checking account at some point.  This ‘checkbook’ can be used to practice managing their money for college preparation.  For instance, as a part of the gift, I recommend adding a beginning balance.  The money should be ‘earmarked’ for college expenses (e.g., college tours, applications, etc.)  As they begin to incur expenses, help them manage this ‘account’ by adding deposits on a periodic basis.  Their ability to manage their Pretend and Play Checkbook will assist them in managing the real thing.

Purchase the game of Monopoly.  I’m sure that we’ve all played Monopoly at least once in our lifetime.  Why is this important?  The game of Monopoly teaches players how to strategize and the art of negotiation.  It also teaches the most important factor in purchasing real estate – location, location, location.  Although this game is older than many of us, it is still relevant. 

I hope these gift ideas are helpful.  As we prepare to give, let’s also look for opportunities to educate those we love.  While they may not welcome your new approach to giving, they will thank you later.  We’ve all experienced being a teenager and assuming that we knew what was best.  As we matured, we realized that our parents did know a ‘thing or two.’  Your teen will arrive at the same revelation at some point; it’s only a matter of time.