5 Good Ways to use your Tax Refund

Are you getting a tax refund this year? If so, there are plenty of businesses that would love for you to come do a shopping with that check of yours. But before you rush out there and slap your hard earned money down for whatever tickles your fancy, try one of these less thought of options that will return bigger advantages for you and your family:

1) Pay off debt. If you’re working your way out of debt, this is a great way to speed up that process as many people receive several thousands of dollars back. This would go a long ways in meeting your goal.

2) Establish an emergency fund. Every family should have an emergency fund of 3-6 months of living expenses set aside for a rainy day. Your refund will help get this built up quickly without touching your monthly budget.

3) Fund your retirement. Make your refund work for your future by placing it in your IRA account for this upcoming year, or max out one of your other investments.

4) Fund your children’s college. If you have young children that you would like to see go to college one day, help make that dream a reality by investing in college savings plan like the 529. A few thousand dollars early on goes a long ways!

5) Make a memory. If all the above has been done, try building a memory with a family vacation instead of the typical purchases. Try traveling with your family or spouse to a new destination that you’ve always wanted to go to, or even just across town for an evening away from the norm. Make a memory!

Investing 101 (3/3)

The final step in the investment process is determining where to place your funds. Today there are more places to put your money than ever for it to be considered an investment. However, a true investment is one that makes a good return on investment (ROI) for the investor. Finding a financial vehicle that gives a good ROI and fits into a solid 20-30 plan requires a setting a few criteria during your search. Here’s my criteria for all of my personal investments:

1) Understand the investment. If I can’t explain what the investment does, or how it will profit me over time, there is no way I’m putting my hard-earned dollars in it. For mutual funds and common stock, I need to know the basics of how the company makes money, spends money, what they produce, why they are better than competitors, and why they are going to continue to grow. NEVER INVEST IN WHAT YOU DON’T UNDERSTAND! Even if you have a personal broker managing all your assets, they should still be able to “teach” you the above information.

2) Solid Track Record. For mutual funds I’m looking for good Growth, Growth & Income, and International Growth funds that have at least a 10-15 year track record averaging 12% or better. Open up any financial magazine and you’ll find plenty of fund managers boasting 30-50% 1-year returns, but 90% of those average less than 10% over a three-year period, or they haven’t been in existence beyond a year. I’m very skeptical of those types of funds. No track record equals no honest gauge to measure the fund by. Good investing requires a marathon approach, so be leery of the “sprinter funds”.

3) The investment is ethical. I choose not invest money into a place I would not do business or whose services I would not use. That means I don’t invest in tobacco companies, foreign companies who practice human right violations, or pharmaceuticals companies that create and distribute drugs like the “day after pill”. A distant investment in a tobacco comapny is the same as walking into a store and buying a pack of cigarettes off the shelf;  it’s all supporting the same company.

4) Invest in what you know. I’m a land developer and commercial property manager by trade. I know the commercial real estate market in my area well. I know cities that are worth investing in and others worth avoiding. I know what makes one property a valuable asset and another property a liability and risk. What am I trying to say? Many of the best investments are directly related to what you know the best. For me, this means keeping a portion of my investment portfolio in real estate. As long as the ROI meets my invest goal of a 10-12% annual average then the investment is worth considering.

Check out my other posts dedicated to IRA’s, Roth IRA’s, and 401K as additional investment tools that are important to have in your investment portfolio. I’ll just leave it at you should take advantage of any long-term investment that gives a tax sheltor to the interest gained during the investment period. Compound interest that grows tax free over 10, 20, or 30 years turns into huge dollars signs in your portfolio compared to those that are taxable along the way.

The bottom line for all investing is simple: start today and do it consistently! The power of investing isn’t how much you have to start with, but by consistently setting aside a portion of your income and giving it time to grow.