saving money – Truth and Cents

Benjamin Franklin said there were only two things certain in life: death and taxes. The other certainty, is that for most recipients, the money will be gone almost immediately after they receive it. According to a 2019 tax return study by NRF, 65% of Americans will spend their returns on vacations, large purchases, or even a “shopping spree.” This seems normal right? The truth is that our unrestricted spending habits have robbed us of the opportunity to get ahead financially. So before your tax return burns a hole in your pocket, or your bank account, let’s talk about some ways to “stretch” your funds and create some solid financial habits.

Tip #1 Breathe

Federal Tax Returns present the largest, lump sum, cash payment that many of us see each year. We often have spent it, even before it ever arrives in our mailbox, or in our account. This habit of spending money in our minds, is exactly why it disappears so quickly once it reaches our pockets. One of the first tips to hold on to more of your return is to breathe. Simple right? Inhale, then exhale. Taking a moment to pause before we start imagining what we will do with this money will allow us to explore other opportunities with our money. Knowing your options gives you power over your impulses to buy something right now! Pause, then begin to think about how to make this money work for you.

Tip #2 Save For A Rainy Day

Saving the money from your tax return is one of the best, and most difficult things to do. The fact that we get so excited about our tax return is a cause to make us pause. Around the time our tax return comes in, we have started receiving the bills from the holidays. Credit card statements show our wild spending during the holidays. Bank accounts are depleted to try and pay these bills. As a result, the Post-Holiday spending remorse sets in, and we find ourselves spending our returns to try and pay off the bills. Normally I would argue that paying down debt is a good thing, except when we don’t have a cushion of savings. Your tax return can create a great balance builder to start a savings account. If you haven’t saved money recently, then saving anything, any amount, will be a step in the right direction.

Tip #3 Pay off a high interest debt

If you have money set aside to cover an unexpected expense, then it might be wise to consider tackling some debt. Depending on the amount of your tax return, you might be able to pay all, or a large part of an expensive monthly debt. Even paying down debt, will free up cashflow during the month and allow for more savings, or additional debt reduction payments. But what debt(s) do I pay off? There are a lot of strategies out there to consider; however I always lean towards which debt would bring you the most satisfaction to pay off? Seeing a debt disappear after you pay it off is both satisfying and empowering. When you make progress towards a goal, it builds confidence and helps you stay focused on your goal. The secret is to keep paying all of your debts on time, and use the money that you were paying on the old debt towards your next one.

Tip #4 Invest

Investing can be a complex and risky option if you are not an expert. However, in recent years, the platforms and offerings to invest have become more consumer-friendly, and make investing as easy as downloading an app. There are different types of investment options however, for beginners, I would look at low cost index funds that are broad and diverse. These funds can be found fairly easily using tools offered online or through an investment app. The point of investing versus saving is to create the opportunity for your money to earn more interest than a traditional savings account. The key here is to do your homework and choose an option that makes sense for you.

Tip #5 Save For Retirement

Everyone knows that saving for retirement is important. So why do so many of us avoid this important discussion. We have all hear that Social Security may not be around when we retire, so it is up to us to plan and save. Contributing towards an IRA or, Individual Retirement Account, is a great option to set aside money annually in an account that we cannot touch without a penalty until we retire. There are two options available to you for retirement savings; Traditional IRA and ROTH IRA. The biggest difference between a ROTH and a traditional IRA is how and when you get a tax break. The tax advantage of a traditional IRS is that your contributions are tax-deductible in the year they are made. The tax advantage of a ROTH IRA is that your withdrawals in retirement are not taxed.¹

Nerdwallet.com

Make the commitment to accomplish more with your tax return by investing in your financial future. Try to resist the temptation to “splurge” and instead, focus on the long term benefits of creating the prosperous life you have always dreamed of.

“Do the difficult things while they are easy and do the great things while they are small. A journey of a thousand miles must begin with a single step.” – Lao Tzu

Sitting on the curb that night, my expensive sports car repossessed only hours earlier, I thought to myself, “How the hell did I let this happen?” I was not a stupid, but clearly, I didn’t have my life together. I was in my early twenties, employed, and somehow drowning in past due bills. As I laid in bed that night, I thought of a million excuses to justify my situation. “It’s the finance company’s fault for not giving me more time to make my payment, or maybe the dealer that should have never sold me a car that was expensive with my income, or maybe it was the credit card company’s fault, for refusing to raise my credit limits while being maxed out.”

In the midst of my most impressive pity party, another thought came to mind. I quickly brushed it off and tried to focus on another excuse to tell myself. But the thought came back again, and again, and again. I began to feel a sinking, and hopeless feeling in the pit of my stomach. At that moment I realized that this could only be blamed on one person, me.

To make matters worse, I knew better than to be this irresponsible. Not in the, “my parents raised me to be more responsible kind of way” but worse. At the time, I had a job at a finance company and I was suppose to be helping other people get our of their financial nightmare, not creating my own. I sat paralyzed in my bed with my mind racing and my heart pounding. I managed to pull my thoughts together for a brief moment of sanity and said to myself, “tomorrow is a new day and I will figure out a way to fix this, I mean at least it can’t get any worse.”

The next morning as I walked back from the gas station across the street, using my last bit of cash to buy some snacks to survive on until next payday, I could see an envelope peeking out from beneath my door. “Oh my God” I literally said out loud. I opened the envelope and read the Three-Day Rent Collection Notice. Seriously? This couldn’t be right, I just paid rent the previous week. A painful phone call later with the leasing office confirmed my rent check had bounced and rent was due immediately. If I didn’t pay, I would be evicted. By this point, I was having a full-blown panic attack. I slumped down on the floor of my “soon to be” former apartment to take toll of the damage I had managed to create in the last 24 hours. My car was repossessed, I am about to be evicted, and I have bills that are already past due, I am totally screwed!

Every day, people are waking up to their own financial nightmare. Realizing that they have a very simple yet complicated problem. They owe more money than they have. And in most cases, it’s the usual suspects; student loans that have piled up, credit card debt with high interest rates, mortgages and cars that have defaulted, or astronomical medical bills. And for many of us, the task of sorting through the mess, and creating a plan to clean it up, is too exhausting to even think about.

I found myself in my own financial nightmare as I was just starting out on my own as an adult. For me, the first step was to overcome my pride and to get out of my own way. This meant, sharing the dirty little secrets of all my finances and asking for help. This powerful first step is the key to ending the cycle of debt and poor financial habits. It is when we can ask for help and be transparent about our money, that we begin to see not only how we got here, but how we can get out, and back on the right path.

But to understand how we get out of the mess, we have to rewind, to where it all began…

I was not born with a silver spoon and my last name didn’t end in Rockefeller or Vanderbilt. I grew up in the Midwest and spent summers on my grandparent’s farm in Missouri. My father is a Vietnam army veteran who put himself through Bible College by working night security and attending class during the day. My mother worked as a secretary for law firms and universities. Every Sunday, my parents would take our family to church, this is where you could say that I learned my first lessons in money. The offering plate would come around and folks would throw in wadded up bills or loose change, whatever they had to give. Even with my $5 allowance, I was expected to tithe 10%.

Giving was my first lesson in money. My parents would tell me, give and you shall receive. This lesson still carries true today. As I reflect on the times on my life where I gave, I always received more than I expected. It wasn’t always money that I was able to give, sometimes it was my time. Like the time that I helped my best friend move into his third story apartment during the summer in Florida. Other times, it was giving what I had, like a home to share with relatives while they found a new place. Profoundly, its the reason why I started my career in banking, and now carry forward with my clients as a Financial Coach.

I began my career in finance after high school and took a job as a Part Time Teller at our local bank. On my first day as a teller my boss, a tough, tall, Brooklyn-raised, woman, said in her distinct New York accent, “first and foremost we are not in the money business here, we are in the people business.” I remember staring at her, absolutely confused, and lost in my own thoughts. “I mean, this is a bank, isn’t this where people literally go to get money?” I think she knew that she just blew my mind, so she leaned in and said, “people are our purpose, money is our service.” That advice, on my very first day of work, became my moral compass throughout my career, if I am not helping someone, then I am not serving my purpose.

Tag: saving money

Don’t Burn Your Return

A Journey Begins…