Archive for January 2014

How To MAXIMIZE The Use Of Your Tax Refund

If you are among the large majority of people who receive a tax refund, you will soon face this question:

“What should I do with my tax refund money?”

Most people have an immediate response to this question. Here are some common responses I receive when I ask this question:

  • “I’m going to pay off my credit card with it.”
  • “I’m going to buy something with it.”
  • “I’m going to use it to pay my property taxes.”

Most people have an idea of where they will use their refund, but it is usually for something they feel is URGENT not the most IMPORTANT.

To maximize the use of your tax refund this year, I recommend you follow the following decision matrix. When you arrive at the step matching your current situation, you will have discovered the one that should help you most!

  1. Do you have $2,500 in your emergency savings account? If you do not, this is the best way to maximize your refund! It will create margin in your life and breathing room for your budget. I’ve never heard anyone say, “My biggest regret is that I saved too much money.” If you do have at least $2,500 in your savings account, move on to #2.
  2. Are you investing enough into your retirement account? If you are not investing enough to capture the full company match (or at least $100 if your company does not provide matching funds), this is your next step. We call this Rung Three of the I Was Broke. Now I’m Not. Ladder. Use the tax refund money to make up your retirement contributions for the 2013 Tax Year (you can do this through the personal income tax deadline of April 15, 2014). If you are investing enough into your retirement account, move on to #3.
  3. Can you completely eliminate a debt with the tax refund money? If you can, do it! If you have two or more debts you could eliminate (but have enough money to eliminate only one of them), choose the debt with the largest monthly payment. This will help you create more monthly margin. If you are not able to completely eliminate a single debt, apply the tax refund money to the smallest amount you currently owe using the Debt Snowball Technique. This is Rung Four of the IWBNIN Ladder. Already debt free except for your home? Move on to #4.
  4. Do you have at least 3 months of expenses saved up? If not, this is a great use of your tax refund money as it will build an even larger amount of financial margin. More margin equals less stress. If you have already achieved this rung (Rung Five), move on to #5.
  5. Are you investing at least 15% of your gross income into tax-advantaged investments? This is Rung Six of the IWBNIN Ladder. Use the tax refund money to build up your retirement, college, and dream investment accounts. You’ve become an incredible money manager at this point which means you will recognize how awesome it is to be able to boost these accounts with your tax refund.
  6. Attack the home mortgage. This is Rung Seven of the IWBNIN ladder. At this point, your tax refund will enable you to gain even more momentum toward complete debt freedom. Nothing better than that!
  7. Increase your investments to at least 30% of your gross income into tax-advantaged investments. This is Rung Eight of the IWBNIN ladder. At this point you are funding a legacy that will literally allow you to bless multitudes. Way to go!
  8. Fund a dream. This is Rung Nine of the IWBNIN Ladder – “Live a great life!” Use the tax refund to fund one of your dreams or someone else’s dream.

My one big EXCEPTION:

  • An investment that provides immediate (or nearly so) additional income. Suppose you were receiving a tax refund of $4,000. If you had the opportunity to invest this money into business dream which will produce additional income for you, then it could be a great use of your tax refund. For example, you could use the money to purchase inventory for an on-line Ebay store. If this would allow you to produce additional income in the future, then it could be a way to multiply the impact of your tax refund.

What are you going to do with your tax refund?

Small Business Tip: Build Financial Margin For Your Business

If you want your business to thrive long term, you must establish financial margin. In fact, the lack of making saving a priority is one of the top reasons small business fail. Even profitable companies have failed because they failed to make savings a top priority.

Let me share a real-world practical example of “margin in action” – the Hoover Dam.

IMG_1574

Before the establishment of the Hoover Dam (and the entire system of dams and reservoirs), the West was subject to wild water calamities. At times, the river would flash flood and destroy everything in its path. At other times, drought would cause water supplies to dry up. It was very difficult for the area to inhabit the area until the establishment of the dams.

I took the above picture of the Hoover Dam, and it really shows how your business’s financial margin account should work. The dam was built very strong so it could hold back the raging river. As the Spring melt begins, the dam captures excessive water and saves it up. This helps prevent rampant and destructive flooding. During times of great drought, it allows the area to continue to thrive because the water was stored up!

Chances are your business has cyclical revenue – “good” times and “less than good” times of sales throughout the year. Apply this “dam principle” and be sure to “store up” during the good times. This will position your business to continue prospering during times of drought.

This post is part of a Small Business Series here at the wildly popular JosephSangl.com. Click HERE to read all of the posts in the series.

Teach Your Child To Be Generous

I’m not sure anything moves my heart like watching my children be generous. Whether it is sharing a toy with their friend or deciding to play the other person’s choice of game, it moves me!

But we must be honest with ourselves: Generosity is not natural behavior. Among our first words are the dreaded “No!” and “Mine!” along with precise timing to exact maximum frustration in the lives of our parents and siblings.

Here are three practical steps any parent can take to help their child develop the gift of generosity:

  1. Live it in your own life!  Children imitate their parent’s behavior – both desired and undesired! This is THE KEY to developing generosity within your children – be a living example of it. Invite your children to participate in your generous actions – giving to your church, volunteering to clean up your favorite hiking trail, attending a charity fashion show, and buying Christmas gifts for a family facing a tough financial situation are just a few examples. Let them be a part of it!
  2. Be grateful – and say so in front of your children.  Use words of a thankful nature. Choose not to say statements that start with, “When I get … I will be happy then.” Have a roof over your head? Be thankful you are not in the rain! Have heat in the winter and AC in the summer? Express out loud just how thankful you are for it! Does your car get you from point A to point B? Give the car a name and be thankful! Say, “Well, old Betsy is humming right along, and I’m grateful I don’t have to walk to town!”
  3. Make giving part of their money management system.  Every single time your child receives money (birthday, holiday, graduation, work, etc), require them to prepare a budget for every single dollar prior to touching any of it! Ensure the planning goes in this order: (A) Give, (B) Save, (C) Invest, (D) Spend – Let them choose (with your guidance, of course) who the money will be given to.

Gratefulness can take hold of your heart and literally transform your entire worldview. It’s one of the greatest gifts my parents could have ever instilled into me!

I’m blessed.

I’m so grateful.

NOTE: This post was written as part of the “Kids & Money” series here at the wildly popular JosephSangl.com! Click HERE to access all of the tips in this series.

Monday Money Tip: Monthly Budgeting That Works!

I love it when my week starts off right! The Monday Money Tip was created as a weekly service to provide people just like you with a practical and simple money tip – right at the start of the week so that you can take action with it!

Register HERE (it’s free) to receive this weekly tip in your email box bright and early on Monday morning!

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You Can Still Fund Your 2013 Retirement Savings Plan

Even though 2013 is over, you can still make contributions to your Retirement Savings Plan through the deadline for filing 2013 Federal Income Tax Returns – April 15, 2014!

  • If you are under 50 years of age, you are allowed to contribute $5,500
  • If you are 50 or over, you are allowed the so-called “catch-up” additional $1,000 – making your maximum contribution $6,500

A contribution can be made to either a Roth IRA (invest after-tax money and withdraw tax-free later) or a Traditional IRA (invest before-tax money and pay taxes upon withdrawal later). I’m a big fan of the Roth IRA because it allows me to receive tax advantages on more dollars. I also believe that tax rates will continue to increase in the future so I would rather pay the taxes today.

Ways You Can Fund Your 2013 Retirement Savings Plan:

  1. Use your tax refund. Chances are pretty good that you would spend this on something that would decrease rapidly in value or have no value at all (vacation, vehicle, TV, computer, etc). Instead of making all of the money disappear, use a portion of it to fund your retirement!
  2. Use a bonus.  Many people receive quarterly bonuses. Use the March bonus to fund your 2013 Roth IRA.
  3. Sell something.  Sell the boat that sits in the yard, the motorcycle that never gets used, or the broken jewelry.
  4. Work overtime.  Work overtime for the next few months and place the majority of the extra income into your 2013 Roth IRA. Plus you will get the added benefit of paying extra Social Security payments so you will receive $3/month extra throughout retirement.

Contributions to individual retirement savings plans are subject to certain income guidelines. You must have earned income equivalent to at least the amount you contribute to your retirement account. Additionally, eligibility is reduced as one’s income increases. The IRS provides additional guidance HERE.

NOTE: This post was written as part of the “Retirement” series here at the wildly popular JosephSangl.com! Click HERE to access all previous tips in this series.