Think I'm getting a refund this year (fingers crossed, breath held, all that jazz) and, in thinking about what I spent my refund on last year, I realized I totally blew it.
How can I actually save (beyond, you know, not spending it) or maybe even grow this possible/hopeful check?
For some context, I wanna buy a house at some point in my life, I should probably get rid of my car loan at some point, and I have some credit card debt. Seriously, what should I do?
Two suggestions:
1. Put a portion of it in a savings account or ETF or index fund, that doesn't let you withdraw it for 3 months and add to that slowly. That way the temptation to spend doesn't get in the way.
2. I use a free app called Acorns that automatically invests it in a few different investment portfolios from conservative to aggressive. They make it easy to put in small deposits and work your way up. You can put in as little as $5 or as much as you want.
Agree with the suggestions already made. Something additional to consider is dividing your refund up into percentages according to your financial goals. For example, if you have credit card debt, but would also like to save for an emergency, you may consider an 80/20 split. 80% goes to your credit card debt that's also accruing interest (costing you money), and use the remaining 20% to start an emergency fund using a high-yield savings account (earning you money). For emergencies, you'll want something that's easily accessible, but if you're trying to save for retirement, ETFs are probably more ideal.
first, you need to pay all of your debts down! that is key. you cannot save when you are constantly putting out. Discipline is denying yourself now, so that your future self can have better.
You can also save as much as 20 a week in an account that you do not have access to and forget about it and let it grow.
Look into Financial Peace University. They have a website where you can get great information and resources. First thing, pay off your debt. Budget for every dollar and account for pocket money (eating out, movies, etc...you may need to cut back in order to pay down debt faster...be disciplined and aggressive). Use the snowball effect. Pay your smallest debt first (lets say it's a department store credit card) and pay the minimum payment on the rest. Once your smallest debt is paid off, roll over the amount you were paying on your department store credit card to the next smallest debt on top of the minimum balance. Remember that every dollar counts. Look for ways to save and use that money to pay off debt. Once your debt is paid off then begin to save aggressively. During this time, do your research on the housing market and decide where you would like to buy. Find out what you can actually afford (not what you "qualify" for which is usually much higher then what people can actually afford). Factor in the % you would need to put down to get the monthly mortgage payment that you can afford. Factor in HOA fees, maintenance and all other bills that come with owning your home. Always aim to have at least $2,000 - $4,000 in a savings account for emergencies. Good luck!
All good advice. I am in the pay down debt group.
You cant get ahead if you are paying 12%, 14%, 18$, or worse 24% interest!
Pay down that debt and you just MADE 12%, 14%, 18% or 24% interest!
Then take the money you WERE using to pay that monster and have it automatically deducted from your bank account monthly and deposited into a no load mutual fund, my favorite something like the Fidelity Contrafund, or a mix of Large Cap and Small Cap aggressive growth funds. I am assuming you are under 50. You are smart to realize doing this will be good for your financial well being in the long run. Good Luck!
All great advice here! Paying down your debt will raise your credit score. Live very frugally, for instance, we're mostly vegetarian due to bills, esp this month. Our credit score is 800+. The higher your credit score, the lower the interest rates on housing loans. A lot of major banks (Chase, etc), have a way of checking your credit score whenever you want without credit score penalties. If you don't have that I think you can sign up for Credit Journey which is by transamerica & you can get your score. GL!
First, have an emergency fund. Afterwards, consider the fact the stock market will get you 6-10% with index funds or blue chip technology stocks (Microsoft, Apple, Amazon, Google; Facebook might be good as well, since it recently took a decent tumble). So, anything that costs you more than 6-10% you need to pay off first (credit card debt), anything below 6-10% you should just pay on schedule (if you have an auto at 3%, that's very cheap money, doesn't make sense to pay faster than the schedule), so take whatever remains after the high interest loans are paid and put the money in the market.
1. Pay off the credit cards then the student loans. If you have balances on multiple cards, pay off the one with the smallest balance first so you feel the progress. Then....
2. Build an emergency fund, shoot for 6 to 8 months of expenses. No job is safe in this economy. Then....
3. Start building wealth. Like saving for the house. Find a house you can afford without living in poverty for everything else. Worst house in the neighborhood you want to live in and then put some sweat equity into it. Especially if you have handy friends and family. Investments are good, too.
I use an app called YouNeedABudget.com. It is an online checkbook AND budgeting tool. It was the only app I could find in 2016 that did both. There may be others now, but I've found no reason to change.
Happy adulting!
I concur with all the above advice with one exception:
I would pay off debt before I buy stocks, mutual finds or ETF’s. Why?
As Steve L noted, if you pay off a loan with 18% interest, you have effectively earned a guaranteed 18% return. You have no such guarantee in the financial markets. Once all credit card and installment debt (car loan) is paid, I would save for a down payment on a home.
Also as noted above, you should balance a 6-12 month emergency fund with paying off your debt.
Finally, I would deploy savings in an internet bank. As of today, one can earn over 2% in an internet bank such as American Express. and CITI.
Good job everyone!
Marketstar
Invest & pay debt with your paycheck & enjoy your refund... everybody could use a mental break and your refund is good for that.
Pay & Invest
To save money , paying off the debt to avoid wasting interest.
Make a plan to save a portion money investment to earn interest.
What should I do with my refund. Currently put into cd
The first thing you should do is change your W2 so you don't let the government keep your money. Dave Ramsey's plan works well. Follow it for success.
I am loving this thread of comments. I got myself into a lot of debt, and am (thank goodness) super close to having it all paid off. I have less than 2k left to pay and am planning on paying it off with my refund, because I too would like to buy a house in a few years, not only will this get me out of debt but it will get my credit score back on track. The plan is to pay off the debt then put the rest into a savings account of some sort.
Congratulations on taking your finances in the right direction by paying down your debt,
Your next consideration should be to build and maintain 6-12 months’ worth of living expense in the form of a money market fund or bank savings to cover a possible job loss and/or unexpected expenses.
You can currently earn more interest income in an internet bank such as American Express (1.7%) than a conventional “bricks and mortar”bank.
See https://www.americanexpress.com/personalsavings/home.html
Good luck,
Markestar
CJackson: I totally agree with you. It's comparable to a dog chasing it's tail. Until you pay off ALL of your debt you will never be able to enjoy the coins that you work for each week. Just think about it, your boss gets rich from you working at his company while the credit card companies continue to receive their interest payments. Mean while where stuck with the left overs trying to enjoy LIFE in the meantime. A good read is Rich Dad Poor Dad.
This response will be a bit different BUT what I did last year with mine was buy things I could flip. Purchased an $800 vehicle that I flipped for $4800, Purchased a $4000 vehicle with that and sold it for $6200. I probably could have kept going but tue patience it took to find the right vehicle was to much for me. My point being invest what you have into guaranteed money if possible. If not take the safe route and Robo Invest. It's worked for me so far!
I definitely agree that you're going to want to pay down your debt first! Having debt brings your credit score down, which in turn will make it harder for you to get a good mortgage interest rate when you buy a house at some point. For your refund, the specific allocation percentage I'd recommend will depend on 1) what the balance of your credit card debt is, 2) how much your refund is, and 3) how much of an emergency savings you have, but I would probably recommend paying 80% of your refund toward the credit card debt, and 20% of your refund into a high-interest online savings account as an emergency fund (look for at least 2% interest). Then, make a budget of your monthly expenses and make a plan for how you'll allocate the portion of your income that exceeds those expenses.
I would recommend the following "order of operations," adapted from Dave Ramsey's Financial Peace University, for where you allocate your savings each month:
0) If your company offers a 401k with a company match, and you aren't enrolled already, sign up immediately. This will ensure you're saving for retirement and also gives you extra income for free! Do this even before you pay off any debt, because while you may be paying 20% interest on that credit card right now, the 401k match is a 50% or 100% "interest rate" in terms of return on investment (depending on what percent your employer matches)! If your company doesn't offer a 401k, ignore this step for now.
1) Save a $1000 emergency fund in a high-interest savings account, and leave it there. Only use it if an emergency occurs, to prevent yourself from taking on more debt.
2) Next, pay down all your debt--both the credit card and the car loan. Put everything you save each month (after you have the $1000 emergency fund) toward paying these off ASAP, because otherwise you're paying a lot more interest than you otherwise need to!
3) After you're debt free, switch back to saving into your emergency fund and aim to increase it to at least 3x your monthly expenses. This way, if you are ever between jobs or have healthcare copays and deductibles that add up, you won't have to go back to credit card debt.
4) Once you're debt free and have at least a 3-month emergency fund, start saving for a down payment on a house. If you have a good credit score (which the above steps will ensure!) then you only need a minimum of 10% down on a house for a good interest rate.
5) Once you have your house (congrats!), start putting more money into a Roth retirement investment account--at least 15% of your gross income each year. If your employer offers a 401k match, you're already contributing to it (see Step 0). For example, if you're currently putting 10% of your income into your 401k, then now is the time to bring your total retirement savings rate up to 15% by putting at least 5% of your income into a Roth IRA. I highly recommend opening your Roth IRA with a low-cost index fund, like Vanguard's S&P 500 Index.
Good luck!
For years I allow myself to get further into debt. Then tax returns come and I have to decide which debt to apply it to. Getting out of debt is one of the hardest self controls of life. Just stop buying stuff I tell myself. Just stop going out to lunch at work, I keep telling myself. I want this I want that, but later when I need this and I need that, I am deep into a stressful hole. Just pay off debt, stop adding to it, and find a way to save something even if it’s $5 when you can....
Great ideas. HOWEVER, take a portion and do something nice for yourself. It does not have to be a large amount. Take your loved one(s) to a nice dinner, something that you normally could not afford or would not do because of the cost. It is very important to be financially responsible, but it is equally important to enjoy yourself now. It will make a great memory and help everyone relax or reduce their stress.
@varun Concerning the Acorns app, are you able to withdraw your funds, or are they locked in for a certain period of time?