| |
|
|
|
|
| The Basics | 5 ways to invest your tax refund
|
Don't confuse the IRS with Santa Claus. New toys may tempt, but you'll benefit more if you pay down debt, take care of long-delayed expenses or invest in your finances or quality of life.
By MP Dunleavey
Your child tax rebate check can be a powerful little windfall, if you invest wisely.
Invest! In this market? Don't panic. If you're not ready for Wall Street, there are plenty of creative ways to invest that money in yourself, your family, or your future comfort and well-being. "Rates of return are important, but so is comfort in life," says Dale Boushley, a financial planner based in Glendale, Ariz. "Are you pinching so hard that you're only going to enjoy life when you retire? You can't stop saving, but you can't stop living either."
5 ways to cash in
Here are some suggestions for using your refund so you can live a little. And if that's not enough, we also offer 16 more ways to use your refund wisely:
Pay down debt. If you owe money on your credit cards, it may feel depressing to use your refund to pay off just a portion of that seemingly perpetual debt burden. Wouldn't it be more fun to go shopping? But if you're feeling practical, and especially if you're paying interest rates along the lines of 18% a year on a card, this is one of the smartest things you can do with an extra few hundred dollars. If you were to invest the money, you couldn't expect to earn anywhere near 18%. So paying down your debt is like getting a risk-free 18% annual rate of return.
Do some preventive maintenance. Take a long hard look around the corners of your life. Are there some minor repairs you could make today that would spare you a much bigger expense down the line? Make a list of all the little things you tend to avoid because you don't have the extra cash -- because now that you do, you can:
- Pump out the septic tank, get the roof fixed or touch up your home's paint job.
- Visit the dentist
- Take the car in for new tires or a tune-up
- Join a gym or sign up for an aerobics class.
Make a plan. Find a financial planner to help you create a long-term investment plan and learn how to manage your money better (hey, we all can learn). Learn more about how to find a good planner ("10 rules for picking a financial planner") and then use MSN Money's Advisor Finder to locate one in your area.
Invest in investing. A safe, easy and inexpensive way to learn more about how money works is to take your refund and start an investment club with a few like-minded (and cold-footed) friends. The National Association of Investors Corp. ("Investment Education for Investors and Clubs Since 1951"!) has a Web site where you can learn how to structure your investment group. And give it a decent name. Investment club sounds a little "Beardstown Ladies" for me. Call it your Portfolio Development Group, or the Mutual Fund Explorers Meeting.
Upgrade your quality of life. It's tempting, when you know that a windfall is coming your way, to daydream about all the wonderful things you could get. Those boots you wanted! The new mountain bike! But getting a refund isn't the grown-up version of a visit from Santa. Before you go on a spending spree, think about what would really improve your quality of life. Take a cooking class instead of celebrating at a four-star restaurant. Or junk your old, overstuffed organizer and replace it with a Pocket PC or Palm. Think about things where the thrill (never mind the Blue Book value) won't be gone in a week, and you can get a real return on your investment.
Avoid a refund next year
Finally, one thing to consider, especially if you are getting a substantial refund this year, is whether it's in your best interests to get one next year. Sure, it's nice to have a spontaneous chunk o' change drop into your lap, but why let the government keep your money, interest-free, for a year? It gets enough of your paycheck already.
If you trot down to your payroll department and change your W-4 withholdings so that less goes to the IRS and more to you, you could have an extra, say, $50 to $100 a month at your disposal. It doesn't sound like much, but even a little extra can enrich your life.
|
|
|
|
|
|
MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
|
|
