by Larry Wiener
When I first introduce friends to the principles of black belt shopping, one of the first questions I ask them is what they are going to do with the money they save. If you can save, say, $100 a month by using coupons, that $100 will do you more good if you are intentional about using that money to improve your life. The same goes for whatever you gain from new tax credits or refunds. Here’s extra money you get without even having to clip a coupon, wait for a sale, or any of the rest.
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How are you going to get the most out of that money? First, figure out how much you’ll get, and when, and how you’ll get it. If you are getting a check in the mail, you’ll want to have a plan for what to do with your money. Building (or repairing) your financial base might be a good idea.
Here are some options to consider:
Pay Down Consumer Debt
Anyone who reads this site regularly knows that we believe debt is the enemy of financial freedom and consumer debt is the most insidious debt of all. If you are getting a refund check, making a large payment on one of those credit cards may be good use of that money. While you are looking at your credit card debt, consider looking for a lower rate.
Fund a Reserve
If you’re in a place where a $200 car repair will put you back in debtors’ prison, consider using the money to fund a reserve. A burst water heater or one of those other normal breakdowns doesn’t need to set you back if you have a reserve.
Review Your Withholding
If you are getting a large refund, think again. If you have use of that money every month or if you can save it with interest, you are better off than giving an interest-free loan to the government.
Review Your Retirement Savings
If you are paying less in taxes, you may want to think about putting more into your 401(k), 403(b), or IRA. Many plans are tax advantaged. Talk to your HR department or advisor about this if you need to.
Consider Extra Mortgage Payments
If you are getting a noticeably higher net pay as a result of tax changes, have a reserve, and don’t have high-interest consumer debt, you may want to make extra principal payments on your mortgage, either regularly or occasionally. Check with your mortgage company to make sure you are not penalized for this payment. Also, check to see if you have to write a separate check for the principal.
Make a Purchase with Long-Term Value
Maybe some new camping equipment will help your family enjoy life more. Maybe it’s time to replace that aging computer. Whatever purchases you make, consider ones that will have long-term value for you and your family. Restaurant meals are quickly forgotten. And, of course, if you do make a purchase with some of your tax savings, use the principles of black belt shopping to get the most for your money.
Consider the Effect of State and Local Taxes
Just as I was getting excited about saving money from the lower tax on dividends and work, I heard talk that the state legislature here in California was considering raising the car tax and the sales tax. This is going on in many localities as the downturn in the economy has affected state and local coffers.
Check to see what tax changes, if any, your state is considering and how those changes will affect you.
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Copyright © 2003 by Larry Wiener. All rights reserved.