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10 Things You Should Do With Your Tax Refund

1/31/2016

Most tax filers get a refund after they file their return. The average refund is about $3,000, which means that tons of people will be wondering what to do with the extra cash.

Too bad tax time is spending time for most people. They earmark the money for clothes, expensive dinners and vacations. Before you blow your tax refund (which is your hard-earned money to begin with), here are a few smart ways to allocate that dough.

Create an emergency fund.
You should have at least six months of expenses in a highly liquid vehicle, such as an online savings account or a money market account. An emergency fund can mean the difference between bad news dealing you a crushing blow or just being a bump in the road. Use your refund check to make a significant deposit in your “rainy day” account.

Pay off debt.
Put your refund to work by getting rid of some of your high-interest debt. Start with the highest interest rate debt and then work your way down. Usually this means starting with any credit cards or payday loans and moving towards auto loans, student loans, and mortgages.

Donate it.
If times are tough, donating to charity might have slipped through your fingers. When you get your refund, it’s your chance to give back to society. Besides, you can claim the tax deduction.

Invest it.
Of course I’m telling you to invest your refund. This is a personal finance site, after all. You can use it to contribute to your Roth IRA, a 529 college savings plan, or in an index fund. If you want to invest in individual stocks, you can do that too. Just make sure you’re conservative, diversified, and not getting ripped off in fees.

Use it as seed money.
Do you have a business idea that you’ve been wanting to start? Use your refund to get your business up and running. A quick infusion of cash might be all you need to transform your dream to a reality, and since you will have created a business, you’ll get small business tax deductions next year.

Make extra payments on your mortgage.
If you make just one additional payment per year on a 30-year mortgage, you can have your home paid off thirteen years early and save thousands in interest. This is a huge return on your investment.

Make your home more energy efficient.
You’ll have the cash – instead of buying a new television, get energy efficient appliances… as long as you do the math and know they’ll save you money at some point. Things like air sealing your home and replacing your lights with CFLs can significantly reduce your energy bill.

Gym membership.
If you’ve been putting off getting a gym membership because of the cost, now is the time to do away with your excuses. If you don’t want a full-fledged gym membership, at least get a treadmill or bike to burn some calories at home.

Get gifts in advance.
Are you stressed during the holidays? Shocked when you get that huge credit card bill in January? It doesn’t have to be this way. Get your holiday gifts now so you don’t have to worry about it later. The same goes for birthday gifts and all holiday cards.

Better yourself.
Buy a few books that will have a direct impact on your personal and professional life. Use your tax refund to take an educational course or attend a seminar on a topic you enjoy. You may be able to get a better job if you get a certain certification, which will pay dividends in the future.

Are you getting a tax refund? If so, what are you spending it on?

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7 Things You Should NEVER Do If You Win The Lottery

1/9/2016

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Becoming incredibly wealthy overnight is the dream for millions of Americans, and the lottery is one way to do it. Winning a few thousand bucks is cool, and winning millions can certainly be life-changing. But what about when the jackpot is even bigger, like half a billion dollars?

At the time of this writing, the Powerball jackpot is at $800 million, with a $496 million cash value.

If you are reading this and you are the winner, congratulations! You can now buy:

992 fully loaded Rolls Royce automobiles
About 70 mega-yachts (“average” mega-yachts, does not include the maintenance cost)
421 of the world’s most expensive Rolexes
4,133 years of Harvard’s current tuition

Hey, what you do with the money is up to you, but a ton of other lottery winners have went from baller to beggar in a freakishly fast amount of time. In a cruel twist of fate, the winners become losers. I guess some people just can’t handle the money.

Some of these points might seem obvious, but there are a ton of pitfalls which snag lottery winners and take them to the poorhouse.

1. Telling everyone.
Whatever you do, don’t tell the whole world you won the lottery. Some states make you announce yourself, but do everything you can to keep your identity a secret. You will become a target for family coming out of the woodworks, every charity in the country, lawsuit-seekers, and gold-diggers.

Try to remain anonymous for as long as possible, and when you get the money, change everything. Get a new address, a new phone number, even a new name if you must. There’s a reason why kidnap and ransom insurance exists. Keep your big mouth shut and avoid becoming a target.

2. Forgetting to sign the ticket.
Oh man, this would suck. Or if you threw your ticket in the trash. Ouch – what a pain in the pit of my stomach. Make sure you sign your ticket, because if you don’t, anyone can turn it in and claim the prize. Lottery tickets are a bearer instrument; whoever shows up gets the money, and it should be you. Sign the ticket!

3. Immediately taking the cash.
This isn’t always a bad choice, but you should consider all of your options and weigh the pros and cons. Taking $496 million up front might seem like a sweet deal (who could spend all of that anyway? Cough, cough… Mike Tyson) but it might make more sense to get the $800 million over a lifetime.

Aside from taxes and other considerations, age also matters when deciding your payout. For example, I am in my 20s. I would probably take an annuity and turn my $800 million into well over a billion dollars. However, an 80 year-old man probably won’t have thirty years left.

4. Not getting the appropriate advisors.
Don’t make the mistake of thinking that you are the smartest person to manage your money, especially if you went from living paycheck to paycheck to vast wealth. Get the most competent attorneys, advisors, and accountants you can find and scrutinize their every move with second opinions.

5. Hooking up your family and friends.
Yes, it’s very noble to help your friends and family, but don’t make them economically dependent. It’s likely that they’ll settle into a sense of expectancy, expecting you to give them a free ride through life. If you want to do this for your spouse, mother or father, more power to you. But when you start paying for your second-cousin’s mortgage, you look stupid.

You don’t have to be a cheapskate, but if you start buying everything for everyone, they’ll probably expect it to last forever. You are not your family’s personal welfare department. Tell those moochers to get a job! Oh, and don’t become your family’s bank, either. Uncle Fred’s “can’t-lose” business idea should find funding someplace else.

6. Giving everything away.
This is noble too, but you can be generous without going nuts. Some people might want to give all of their winnings to a charity or religious institution. Ah, so virtuous. Then, imagine what they feel like years down the road when they face a serious crisis and no longer have the means to deal with it. The best way to help others is by helping yourself.

7. Trying to keep up with the super-rich.
Somewhere, reading a report by a fireplace is Bill Gates. He’s got a television playing in the background and he hears a segment about the Powerball. He thinks, “$800 million? That’s cute.”

Even at $496 million, you cannot keep up with the billionaires, or even the Kardashians, of the world. They can make their money again; you probably can’t. I know it’d be cool to own a private island. A castle in Europe is fabulous and an original Picasso is the cat’s pajamas, but you shouldn’t go hog-wild on these things.

Although it’s not $500 million, here’s a true story reality check. In 2004, Sharon Tirabassi won over $10 million and bought a big house, fancy cars, exotic trips, etc. Now she’s back to riding the bus. Frowny face!

What would YOU do if you won the $800 million Powerball? Tell me in the comments below.

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