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Getting The Most Out Of Your Tax Return

Tax season may just be the highlight of the year for people who anticipate a refund, because the money could provide the opportunity to be used for anything they want. The average 2014 tax refund was $3,034, and it was slightly higher for those who opted for direct deposit which was $3,096 according to an article from USA Today. But what’s the smartest way to spend that extra cash? According to the same article, some  surveys showed that most Americans plan to pay down debt, although one survey conducted by a financial adviser cited in the same article concluded that young adults between 18 and 34 were likely to spend it on entertainment and shopping.

While everyone’s plans for their tax refunds may be different, knowing what you could do with that money is a great starting point. With that said, have you considered using your refund to invest in the stock market? After all, if you have excellent money management skills, you may not need to spend your tax refund to pay down debts or to fund a shopping spree. If you are treating your tax refund as discretionary income, than investing may be something you can try. Remember though, as Michelle Matson, the VP of Matson Money says, discretionary income is your extra money after you have paid all of your bills and living expenses.

Once you’ve determined that your tax refund is ‘disposable,’ you can begin looking into the stock market. Describing your tax refund as ‘disposable’ only means that the money won’t affect your current financial status or lifestyle. Also understand that investing in the stock market involves risks that  you must be prepared to take. The market fluctuates, which is ok because the fluctuation can provide the return, but may also result in losses should you need to liquidate your investment.

When you begin to navigate the fundamentals of the stock market, you have the opportunity to engage with investor coaches and advisers. Take, for instance, Mark Matson of  Matson Money, who  recommends balancing portfolios through diversification and focusing on long term investments. But remember, investment strategies are not guarantees, past performance is not indicative of future performance and investors’ financial goals may not all be the same. Your tax refund offers many potential benefits, but you should consider acting carefully when deciding what you want to do with it.

Managing Your Money

When it comes to managing your money, we all have to live within our means.  First and foremost, this means that we  always want to make sure we  have a roof over our head, clothes on our back, and food on the table before we consider all the things we want. With that being said, managing your money can be a challenge and poses some difficulties if  priorities aren’t set from the get-go. Without a doubt, poor money management can lead to financial stress, lifestyle difficulties and more, but by following some basic guidelines,  there’s a good chance you can meet you needs and still have a chance to satisfy at least some of your wants.

Redefine ‘Pay Yourself First’

As Vice President of Matson Money, Michelle Matson believes you should redefine the way you pay yourself. This means pay your needs first.  Then, if anything is left over, focus on your wants.  Start by creating a realistic budget, which allows you to  pinpoint what ‘needs’ must be paid, how much they cost and where your money is going. Your “needs” budget  should include a savings account or retirement plan before you begin to focus on ‘wants’. Sit down and outline your finances in order to start the budget process. By sticking to your budget, you will know exactly how much is left over on a weekly, monthly or annual basis to cover nonessential items.  By exercising healthy spending habits, you increase the potential of having extra funds available for wants.

The Next Step

Once you have successfully created and implemented a realistic budget, you will know whether or not you have any discretionary income leftover,  this is the time to hone in on your wants, which may include investing at least 10% of your annual discretionary income in the stock market. Investing has the potential of producing positive returns, but you should be aware  that the market is impossible to predict and not all outcomes will be positive. However, by building diversified portfolios with your extra funds, you have the chance of developing a stronger financial footing.

Just remember to live within your means and keep an emergency fund set aside. Remember to exercise caution when it comes to luxury items, because their value may be short-lived and at the end of the day, often aren’t worth the price you paid. By properly managing your budget and keeping your goals in mind, a well-rounded financial future can be within your reach. Always be absolutely sure you can afford something before purchasing it or investing in it!