Check out these four tricks used to get you to spend more (without you knowing it).
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I Have to Pay
When you realized you weren't getting a refund this year, you probably didn't jump for joy, did you? Bet you didn't. None of us are thrilled about sending our hard-earned money away.
Even though you have to send money to the IRS this year, it's not the end of the world, even if you're already living on a super-tight budget. Even if you've already sent in your check, here are some things to keep in mind:
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- Revisit the budget. See where you can squeeze a little bit of cash out of certain categories in your budget—all the little amounts from various places add up! Try your absolute hardest to resist using money from your emergency fund. How about pulling a little out of your clothing, entertainment, or vacation funds? Get free budgeting forms here.
- Clean out the house. It's that time of year again where people are always looking for a treasure in someone else's junk. It's nothing but a win-win situation: you get rid of clutter in your garage/attic/shed and make extra cash while others walk away with bargains.
- Pizza, anyone? Pick up a part-time job for a short period of time. Delivering pizzas is a fabulous idea—and it's great for attacking your debt snowball like crazy, too!
- Here comes the debt snowball! If you absolutely can't write a one-time check to the IRS, put this payment in your debt snowball. Just remember that you will have to pay interest just like most other bills you are attacking in your snowball.
Don't stress about sending in the check. By following the above tips, you'll be back on track with the Baby Steps in no time!
I Got A Refund!Instead of thinking this money—whether it's $300 or $3,000—is a gift from the government to send you to the Bahamas or to get a brand-new spring wardrobe, think about it differently this year. Even though nice trips and new clothes are great, only consider stuff like that after you've taken care of these necessities first:
- Build up your emergency fund. If you don't already have $1,000 in the bank, stash that away as fast as possible. It's important! Life is going to happen, and you need to be ready for your own sake. Don't let Murphy catch you off guard and put you further in debt. If you are already debt free (except for the house), throw this extra money toward building up your full emergency fund of 3-6 months of expenses. More
- Attack your debt snowball. If you already have your $1,000 emergency fund, attack your debt snowball with gazelle intensity. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs. In that case, list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan. More
- Invest it! Only after you are out of debt and have your full emergency fund saved should you consider investing your refund. Remember that if you are under 50 years of age, you can contribute up to $4,000 per year into a Roth IRA ($5,000 for over age 50). This is money that grows tax-free! If you're already contributing 15% or more into your own accounts, use this money toward your child's college funding. Let us put you in touch with a trusted investment professional in your area to help you set this account up.
- Pay off your home. Did you know that you aren't destined to have a house payment for the rest of your life? Yeah, it may sound crazy, but I'm telling you the truth! Once you've completed Baby Steps 1-6, it's time to own your home 100%. Maybe your refund is a whole house payment or two ... or three. If you put your refund toward this, you are that much closer to owning your home—possibly months earlier than you originally expected. Now wouldn't that feel awesome? Just think what life would be like with no payments!
It's time to think differently this year about this extra money! Remember ... Debt is normal. Be weird!
Don't guess when preparing your taxes. Get help with one of Dave's recommended tax specialists.