Personal Tax Refund – 5 Ways to Make More Money Spending Your Refund – Part 2 of 2
Please read the disclaimer before you continue.
In the last post, we looked at 2 ways you can increase the value of your personal tax refund. Firstly, we looked at how you can save thousands of dollars in interest by using your refund to pay off debts. Secondly, we looked at how you can compound the amount of your refund by investing it in a wide variety of different vehicles. This post will cover the last 3 ways you can make more money by spending your refund.
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5 Ways to Make More Money Spending Your Personal Tax Refund – Continued
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1.                 Buy or start a business. This suggestion is not for everyone. Most of the people I talk to say they do not have enough time to start a business, or they have some grand fear about what a business really is. The truth is there are many businesses you can start and work at part time. I currently have a vending business and an online marketing business that I run while still working full time. It can be done. Some business ideas include:
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a.      Vending
b.     Online marketing
c.      MLM companies
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I chose the above businesses because I know they all can be done part time and with minimal upfront costs compared to other businesses. Most MLM companies provide excellent training and mentorship. Usually a couple hundred bucks will get you all the training and resources you will need to get started. I can also tell you from experience that you can run an online business for less than one hundred dollars a month. Do some research and see what you like.
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2.                 Buy real estate. Here is the basic idea: Use the money from your personal tax return as the down payment for a rental property. Rent the property out and let it pay for itself. I give this suggestion because this is one that my wife and I have done. We got back enough from our taxes to put down 5% on a $320, 000 4-unit rental home. The rental income from this is about $37, 500/year. We got a lot back form taxes because I am heavily invested in step #3. There are many tax advantages to having a business, especially if it’s a home-based business.  Â
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3.                 Pay down your mortgage. This one is pretty simple. Put your tax return directly onto the principal of you mortgage, assuming you have that option. I would only say to do this if you have no consumer debt. It would make no sense to pay off a debt at 5% while still carrying debt at 18%. Putting money directly onto the principal of your mortgage could save you thousands of dollars over the long term.
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        There are a number of different options you can choose from when it comes to spending your personal tax return. Don’t be like most people and blow it on things you don’t need. If you can afford to then by all means, however, statistically only about 5% of the population can afford to. Your tax return is a great opportunity to get ahead financially if spent wisely. Find out what works best for you and use this opportunity as a springboard for financial success.
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Filed under: Tax Time
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If you’re at least 5 years away from retirement age, I would add the idea of contributing your tax refund to a Roth IRA. The money you add to the Roth IRA will grow tax-free, so when you take the money out, you won’t owe any income or capital gains taxes. Depending upon your tax bracket, a tax-free return of 8% is equivalent to a taxable return of 10%-12%.