Tax Returns and Saving Money go Hand-in-Hand
My wife and I have been saving our Federal and State income tax refund for approximately three years now. I can honestly say that our money is finally starting to grow and work for us. On average, my wife and I receive approximately $5,000 from State and Federal tax return. Three years ago, we decided, “Instead of spending our tax return, we need to reinvest it into our future”. So that is what we did.
Alright, enough about me and my wife, let us run a few number so I can show you
how your income tax refund can set you up for financial success in the future. See the 2 scenarios listed below:
Scenario 1: Say for instance, in April of 2010, you received a tax return of $5,000. You decided not to spend your money and put it in a Roth IRA (averaging 9% annually). In December 2012, you receive a 9% interest on your initial investment of $5,000. At the start of 2010, your initial investment of $5,000 has now grown to $5,450 due to the 9% interest. You may not think this interest on your initial invest is a lot of money, so let us keep going. Say in 2010, you received another tax return of $5,000 so you were smart and decided to add another $5,000 to your $5,450 that you had accumulated in year 1. Your total amount of money would jump to $10,450 in two short years. Not so fast my friend, I did not include the 9% interest that you will receive on your $10,450, so your actual total would be $11,390. Just imagine if you would practice this strategy for twenty years.
Scenario 2: Let us say you did not want to put your money in an invest account (i.e. mutual fund, IRA, Roth IRA, Money Market Account). You decided to put your tax return in a checking account for twenty years and did not touch it. If you receive an average of $4,000 annually from your tax return for twenty years, you would be sitting at $80,000 in your checking account. Does that not sound like a nice chunk of change? According to National Retail Federation’s Tax Returns Consumer Survey conducted by BIGinsight, “43.8 percent of those expecting refunds will stash some of their cash in savings, up from 42.1 percent who said so last year and the most in the survey’s nine-year history” (Gourmet Retailers, 2012).
In closing, unfortunately, 46% of all Americans will decide to spend their tax returns on material substance, such as: a down payment on a car brand new car, entertainment outside of the home, rims/electronics for the car, and the newest electronic gadget (i.e. IPAD 3, Apple computer). In my opinion, I do not think one should invest their income tax return on the above items. These materialistic things will eventually decrease in value over time.
The difference between the rich and the poor is that the rich do not spend more than 10% their net worth on frivolous materialistic things. Conversely, the poor will put themselves in debt in order to keep up with the Jones or the rich. If you are not rich and want to find a unique way to allow your money to grow, I challenge you to try one of the above scenarios.
Below are two Tax Facts:
1. At this time of year when millions are waiting on their tax refunds, scammers start trying to take advantage. The Better Business Bureau of Central and Eastern Kentucky is warning people to not fall victim to several e-mails claiming that their tax refund appeal has been declined.
One particular e-mail is sent from [email protected]
“A couple of consumers have sent this one in,” said Heather Clary, a BBB spokesperson. “Plus, there are other ones going around, as they usually do at tax time. Everything from your Social Security number doesn’t match your information to how much money you have coming in your refund.”
2.If you e-file, you can generally expect your refund within 10 – 21 days. The projected refund date “Where’s My Refund?” provides may change as your tax return moves through processing. Keep in mind that IRS telephone assistors will not be able to provide additional information. Visit: http://www.irs.gov/individuals/article/0,,id=96596,00.html