The dreaded April 15th deadline (extended to 4/16/12 this year due to the 15th being a Sunday) is quickly approaching, but many of you will be receiving a tax refund this year. If you have already received your refund for 2011 or are about to receive it, you might want to think about the destiny of this windfall. Here are some very productive possibilities for you to consider.
1. Emergency Fund: Start (or add to) an emergency fund. Many people don't have a dedicated rainy day fund; only the presumption that they might have enough cash in the event of reaching a tight spot. Our present economy has created financial tight spots for many people and left many unemployed for months, even years. There's a peace of mind in knowing that you have a financial cushion to assist you in these times.
2. Invest in Yourself: You are definitely a worthy investment, so put the money toward education, personal improvement, business, etc. A personal experience with the potential to enhance your life is a very productive expenditure.
3. Life Insurance: An Index Universal Life Insurance (IUL) policy will allow you to satisfy several objectives in one effort: 1) provide life insurance for your family in the event of your demise 2) provide higher than standard savings for future efforts (emergency fund, real estate, travel, etc.) 3) secure tax-free and law suit free funds and 4) establish or supplement retirement account, also tax-free and without any opportunity of losing your investment.
4. Retirement: As a better late than never proposition, start or increase your retirement account. One of the biggest fears retirees have is outliving their income and one of the biggest costs is the cost of going backwards (losing money). A Fixed Index Annuity will protect you from both. You may even consider moving any old IRAs or 401(k)s into such an account.
5. Childhood Funding: Help your child establish a funding account. An IUL is very inexpensive for kids and will support them in a variety of ways: 1) college funding: IULs perform better than the traditional 529 Plan and are a great way to pay for college without incurring any debt from loans or credit cards 2) purchasing a home 3) start their own savings or retirement accounts.
6. Pay Down/Eliminate Debt: Always a smart choice. Start with the accounts having the highest interest rates and you'll soon have more disposable income.
7. Review Your Financial Strategy: I can't tell you how many times I've heard someone say they were too scared to open their IRA/401(k)/Pension or other investment account statement. Open the statement, review it and make any necessary adjustments. You want to stay on track or get back on track in order to have a positive result.
8. Vacation: Pay for that trip in advance. Cruises are always good for this. Instead of racking up a bigger credit card bill, consider pre-paying some costs or taking an all-inclusive trip (some are not as pricey as you might think). Going on a vacation rejuvenates everyone and broadens your horizons. The experiences and memories created on a vacation will never go away.
9. Create a Will or Living Trust: Write a proper will or living trust. Your refund could pay the attorney fee (or you could use Legal Zoom), and the document you create will be ironclad.
10. Your Health: See a doctor, optometrist, dentist or physical therapist. If you haven't been able to see these professionals due to your insurance situation or your personal cash flow, your tax refund might provide a way for you to do this. Just like you need to know the results of your investment strategy, know what's going on with your body. Silent killers aren't usually silent, just ignored.
11. Pay It Forward: Turn your refund into a charitable contribution. Your giving will be deductible on your 2012 federal tax return when you itemize your deductions.
Need assistance with any of these areas, give me a call and I'll point you in a good direction.
[Pamala Henderson is an Associate and financial services agent with People Helping People, based in Van Nuys, CA. Holding both a Bachelor of Arts in Economics and Master of Business Administration she is the Finance Contributor for We Talk Real Estate and Financial News. For more information or to discuss your options, contact her at 866-778-4261.]