It’s that time again. You’ve waited a whole year and it’s finally here. What am I talking about? Tax season. All last year you’ve overpaid on your taxes (you hope) and you should be getting a big fat refund back (you hope). You already started mentally calculating what you are going to do with all your tax money. I can buy the kids new clothes, I need to do this work on my car, I could put a down payment on a newer car, I could buy a whole new living room set, I can take a vacation to Vegas, etc. There are many uses that you can do with the money, but in many of these scenarios, it’s just for a short fix. How many memes do we see on Facebook where we see a person on the bus in February, new car in March, repo’d in April, and back on the bus in May? Many people will say well it’s my money and I can spend it how I want to. But if you are receiving several thousands of dollars and then being flat broke a few months later, it is a problem with this. It’s because you are living in the now, you never think about your future. At some point, you’re going to want to retire, unless you just want to have to work until you are lowered into the ground.
It starts with little things now. Don’t wait until your 40’s, 50’s, or even 60’s to start thinking about your future/retirement plan. The earlier you start, the better financial position you will be in later. A phrase that I get tired of hearing people say is I’m broke. Unless you literally don’t have anything, you are not broke, but your managing of finances may need some fine tuning. A way to start is by ending the cycle that continues with buying a bunch of stuff that either costs you money, or loses value instantly during tax season. If you are fortunate to receive $2000, $3000, $4000, $5000, or even $6000 during tax season, rethink the way you spend your money. After all you worked for it and you want to get the most out of it. ******Disclaimer: I am not a trained financial professional, but I do enjoy budgeting and finances. Seeking a professional will better be able to help gear a plan for your specific situation. *********
Here is a chart illustrating how to spend your tax return responsibly.
| Formula | $2000 | $3000 | $4000 | $5000 | $6000 |
| 30% invest | $600 | $900 | $1200 | $1500 | $1800 |
| 20% save | $400 | $600 | $800 | $1000 | $1200 |
| 30% pay debt | $600 | $900 | $1200 | $1500 | $1800 |
| 15 % blow | $300 | $450 | $600 | $750 | $900 |
| 5% your choice | $100 | $150 | $200 | $250 | $300 |
| Money invested over 18 years (no interest) | $10800 | $16200 | $21600 | $27000 | $32400 |
| Money saved | $7200 | $10800 | $14400 | $18000 | $21600 |
A formula I have come up with (check with a professional to see what works best for you) is off the bat, half of your money shouldn’t even be touched. 30% should be invested and 20% should be saved. I say 30% for investing because you want to be aggressive with building your retirement portfolio. Invest now, to enjoy for later. 20% should be saved because emergencies do come up and you don’t want to have to pawn/sell something of value, or have to ask relatives/friends for money. After all, you don’t want people all in your business especially after you flaunted all your tax money and now you’re broke. Another 30% should be used to pay down or even off some debt. Sometimes you have those nagging bills that you can’t seem to get rid of, but if you can pay a big amount on it, you can knock down the balance and eventually pay if off quicker. Up until this point, you’re probably saying ‘really Na’imah, all business huh, no fun right. You need to allow us some fun. Yolo.’ There is some truth in all work and no play makes jack a dull boy. Go ahead and blow 15%, and keep it to a strict 15%. If you’re familiar with the movie Brewster’s Millions (the Richard Pryor one from the 80’s), Monty Brewster was set to inherit $300 million from his great uncle. But to get his inheritance, he was given 10% or $30 million to play with. The reason why is because his uncle worked hard to acquire the wealth and he didn’t want his nephew to just piss it away. Same concept here. I say 15% now because I adjusted for inflation. But as the chart shows, you can still do a lot with the 15% of your tax return. And then the last 5% comes down to you. You can pay it forward by donating to something or just making a difference in someone’s life. Keeping positive vibes around you is good. Flush the negativity away.
So now I ask, why not try this way? You’ve been doing the other way and it hasn’t been working. You have nothing to lose and so much more to gain. You will grow tired of material things, it’s time to invest in your future and start to build financial security.
