Top 5 things to do with your tax return
In 2011, the average federal income tax refund was $2,985 and two-thirds of taxpayers are expecting a tax refund this year. While some individuals will use the money for every day purchases, vacations or big ticket items, here’s a list of more frugal things to do with your money.
- Pay off debt – This one is obvious but paying off your high interest debt can save you money and give you piece of mind.
- Start an emergency fund – Avoid getting in debt by create an account specifically for emergencies that crop up such as home or car repairs, job loss and vet visits.
- Fund your retirement – The longer you contribute money into IRA accounts, the more compound interest you can accumulate.
- Save for the medium term – Save money for future purchases such as a newer car or new hot water heater.
- Start a 529 account – By contributing $2,985 into a 529 account for your child and it grew at a rate of 6.5% annually; you would have about $9,587 after 18 years.
If you are not receiving a tax refund this year or you owe taxes there are still ways to pay off your debt as well as fund your savings. By selling some of your future periodic payments for a cash lump sum to use to pay off your debts or taxes. Once your debts are paid off, use any remaining money to fund your emergency fund. In addition, the money that you previously allocated towards debt should be reallocated towards funding your various savings accounts. Need help figuring out your finances? Visit our helpful tools to get started.
5 tips from billionaires
Every year Forbes puts out a list of the world’s billionaires. This year was a record setting year with 128 new billionaires added to and 117 billionaires dropped from the list for a whopping total of 1,226 billionaires. While most of us can only dream of being a millionaire, let alone billionaire, if we take away the zeros we can still learn a thing or two about personal finance and well-being.
- Live below your means – You should be spending 26% or less of your monthly income on housing and any additional debt should be less than 8% of your monthly income. One Forbes billionaire recently purchased his first home which was worth only .4% of his net worth. Imagine if your net worth was 100k that would be only $4,000 for a house. Realistically, if you spend less and save more you are able to handle situations better when they do come up.
- Think long-term – Save for the “what ifs” in life as well as for your retirement. If you plan long-term you will be better prepared for your future. By starting early, you can use the compounded interest to your advantage. In addition, you should have an emergency fund and additional savings in place to avoid getting into debt.
- Do what you love – Most successful people have one thing in common–they do what they love and are passionate about it. It makes going to work a whole lot easier too.
- Practice makes perfect – Most people weren’t born with their skills, they practice them. Just think of the first time you road a bike or threw a ball, you weren’t an expert at it but over time, the more you practiced new skills they better you got. This applies to pretty much any new skill you acquire.
- Give back – Helping others by donating your time to a cause you are passionate about will not only helped spread the word, it can make a difference to your community. Some research suggests that giving helps individuals feel better about themselves. In addition, it is a great way to meet new people who have similar interests.
If you are looking for ways to cut back your expenses, create a budget, start an emergency fund or pay off your debt; visit Rescue Capital's online financial tools.
It’s an emergency! Why you need emergency savings
At Rescue Capital, we have always stressed the importance of having an emergency fund. If you have an emergency or you suffer job loss, having a well funded emergency fund is an incredible asset. It allows you to pay for things such as car repairs or your mortgage without having to turn to credit cards.
Unfortunately, only 54% of Americans have more emergency savings than credit card debt according to a recent Bankrate.com poll. 25% of Americans have more credit card debt than savings, while 16% have no credit card debt or savings.
Approximately two-thirds of taxpayers are expecting a tax refund this year. 44% of them plan on stashing some of their refund in savings while 40% plan to use some of it to pay off debt, according to a survey by the National Retail Federation. Some individuals will use the money for every day purchases, vacations or big ticket items.
If you have no emergency savings or you have more debt than savings, you should fund your emergency fund with your tax refund if all possible. While paying off debt should be an important goal, not having an emergency fund in place can cause you to become deeper in debt.
What if you don’t have an emergency fund, you are in debt and you don’t have an income tax refund. Or worse you owe money to the government, what should you do?
First and foremost take a look at your spending. Where is your money going? Look for ways to reduce those little expenses that are eating away at your budget such as visiting the vending machine or shopping when you’re depressed. Search for ways of saving money such as raising deductibles, refinancing or getting insurance quotes. Create a budget and stick to it. Don’t forget to include saving into your budget.
If you have scaled back where you can and you still can’t pay off your debt or create an emergency fund, downsizing may be in order. Try selling unwanted items or other assets such as recreational vehicles or future periodic payments from an annuity. Typically the rates to sell illiquid assets such as structured settlement annuity, divorce settlement, a single premium immediate annuity, life insurance policy, inheritance, royalties, or a pension are considerably lower than credit card interest rates.
If you are interested in receiving a free market analysis of your illiquid asset as well as no-obligation written quote, call Rescue Capital today at 866.688.3532.
Ask Rescue Capital: Should I use my lump sum payment towards my debt?
Dear Rescue Capital,
I am employed and my only debt is my student loans. I was thinking about selling some of the future annuity payments to pay off my $45,000 in student loans and use the remainder to put a down payment on a house. I am not sure it is a good idea.
Jessica in New York
Dear Jessica,
If you don't need the income from your annuity, paying off your debt could be a huge win at mortgage approval time. It tells your lender that you are debt free and that you were able to pay the loan without defaulting. Before buying your home make sure that you have at least 6-8 months of living expenses saved up first. If you have that money saved along with your down payment then yes, go ahead and start looking for a home. You should put down at least 20% to avoid PMI. It also shows lenders you are serious about buying the home. Give us a call at 866.688.3532 and we will gladly help you with all the numbers regarding your future payments to ensure you have enough money to accomplish your goals.
Best Regards,
Rescue Capital
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