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Monday, April 18, 2005
Use your Tax Refund "Foolishly"
A great article here about what to do with your tax refund. Don't take a trip! Don't waste it on the newest gadget! Pay off your credit card debt or begin investing. Read the details here. Let me know what you think of the advice.
5 comments:
Anonymous
said...
I think it's excellent advice. In fact, this is the first year that I invested my refund instead of spending it.
I agree, man. I just calculated the future value of investing a set amount each month (including the tax return) vs. paying off debt with that amount. In 5 years, if I invest now, I would have $400 more than had I paid the debt, instead. I think that's what I'm going to do.
That's true. What I did was take the debt payments I make now, including the overpayments I do each month. I figured how long it would take to be totally debt free (5 years). Then I took a percentage of that (10% of take home pay), that I would invest per month and used a 10% annual average return.
Now if I was able to pay off the debt in 5 years, instead of about 6, I could take the full amount of money that I currently pay on payments and invest that monthly starting when the debt is paid. Ie Starting at year 5 until 6 make substantially larger investments each month.
I found that the difference between the two options was about $400. I know this would rise if I used a higher expected return.
Making a long story short, I decided it would be better to have that $400 in 6 years than not. So I'm going to invest a percentage of my take home pay.
5 comments:
I think it's excellent advice. In fact, this is the first year that I invested my refund instead of spending it.
I agree, man. I just calculated the future value of investing a set amount each month (including the tax return) vs. paying off debt with that amount. In 5 years, if I invest now, I would have $400 more than had I paid the debt, instead. I think that's what I'm going to do.
I guess I should clarify that I mean "long term" debt as opposed to "credit card" debt.
And it depends what you invest in. Invest in the wrong thing, and you could have lots less. :)
That's true. What I did was take the debt payments I make now, including the overpayments I do each month. I figured how long it would take to be totally debt free (5 years). Then I took a percentage of that (10% of take home pay), that I would invest per month and used a 10% annual average return.
Now if I was able to pay off the debt in 5 years, instead of about 6, I could take the full amount of money that I currently pay on payments and invest that monthly starting when the debt is paid. Ie Starting at year 5 until 6 make substantially larger investments each month.
I found that the difference between the two options was about $400. I know this would rise if I used a higher expected return.
Making a long story short, I decided it would be better to have that $400 in 6 years than not. So I'm going to invest a percentage of my take home pay.
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