(Not mine, btw)
Now that you’ve probably received your refund check in the mail or even direct deposited, here’s how you can spend your tax return from a Bankrate article. Hopefully you haven’t spent it already!
1. Pay down credit card debt.
2. Open an IRA (I recommend a Roth IRA unless you don’t qualify).
3. Take stock (I’m not too sure about this one. I recommend that you don’t invest in the stock market unless you have at least basic knowledge of how it works).
4. Set up a rainy day fund.(In other words, an emergency fund. I would probably put this higher than number 4, though).
5. Refinance your house (They’re saying use part of the refund to pay the closing costs of refinancing. I don’t think you should refinance unless you’re going to save at least
6. Add to your mortgage payment (A great idea!).
7. Spruce up the homestead (They’re talking about some do-it-yourself landscaping or remodeling).
8. Auto details, details, details (They’re talking about detailing your car, if you’re planning on selling it soon. I think it’s a good idea only if you’re planning on selling, though).
9. Service your car (They’re saying most people don’t maintain their cars. That’s true, but why wait to maintain them? It will cost you less to keep a well-maintained car).
10. Get the star treatment (In other words, splurge a little. Don’t go crazy now, but you deserve a little splurging once in a while).
My dad just learned this the hard way just recently. And usually he’s good about things like this. His 2002 car was due for a new water pump and timing belt. He took it to the dealer that he normally takes it to and they quoted him $1600 for the whole job. He just ok’d the job without getting quotes from other dealers because he “trusted them”.
Well, turns out that he shouldn’t have trusted them. After he told me the quote, I thought it was way too high so I did some calling of my own. At this point, the service was already done but he hadn’t picked up the car yet. I had them fax me the quotes so I could have a hard copy. The lowest quote was $925, tax included! That’s nearly $700 lower!
I told my dad that I was going to go the dealer myself and try to negotiate the price down because that seems like overkill to me. With the hard copy quote in hand I went to talk to the service manager. He basically wouldn’t budge on the price because my dad had already committed to the price and the service was already done. Despite the fact that labor was twice as much; $1000 vs $500, he made up a lie that they charge a flat rate for service on labor. In the end, he gave me a $100 discount, which still makes it almost $600 more!
Long story short, I told my dad to get quotes next time before taking it to service it. He will not taking it to that dealer anymore.
Lesson learned. Make some phone calls and get quotes from multiple dealers before bringing in your car for servicing. Get them to fax you a written quote if possible. It will make life a lot easier and will save you some bucks, too! In this case, it would have saved nearly $600! Definitely not chump change, indeed.
I just saw an ad for the Assocation of Payday Lenders on tv. What a ridiculous attempt to try and put the rip-off payday lenders in a good light. If you don’t know, payday lenders will give you cash for a post-dated check that’s on your payday and usually charge $15 for every $100. If you annualize these fees, the interest rates are in the triple digits and some as high as 1000 percent! If you want to pay 1000 percent on a few hundred dollars for an “emergency” you might as well give it to me. Many people get into a dangerous cycle with payday loans with some people actually taking out another payday loan from somewhere else to pay the original payday loan. If you had an emergency fund to begin with, you wouldn’t be paying 1000 percent!
The ad shows some images like a kid with his arm in a sling and a man with a broken-down car on the side of the road. It’s trying to convey that payday loans are there for you in an emergency. You don’t need payday loans if you have an emergency fund! It also talks about how you should only use payday loans for short-term expenses. It should be saying “Don’t use payday loans at all!” Towards the end of the commercial, a nice-sounding woman says, “Always use payday advances responsibly.” The ad sounds like an alcohol commercial, “Please drink responsibly.” This is so ridiculous.
Payday loans are rip-offs! Avoid them at all costs!
You can watch the commercial on YouTube.
Here’s the link to a Boston Globe article on the ad campaign.
It’s pretty much common knowledge now that everyone should have an emergency fund of 3-6 months (some experts say even more) of expenses in liquid savings (money that’s easily accessible). But unfortunately, common knowledge isn’t necessarily common practice and many people just don’t have anything in savings. The key to getting out of debt is to have some sort of emergency savings that acts as a cushion against life’s hurdles. Without this cushion, you will be forced to use your credit card or payday loans and go deeper in debt.
If you’re struggling with debt, you absolutely need to have an emergency fund. It is extremely important. Here’s a great plan to get out of debt from Dave Ramsey:
Step 1: Stop borrowing. Simple enough.
Step 2: Save $1000 and put it in the bank. This is the beginning of your emergency fund. You want to do this before you start attacking your debt because this will act as a cushion to protect you for emergencies.
Step 3: Start attacking your debt using the “debt snowball”. We’re going to pay off all your debts except your mortgage. List your debts on a sheet from smallest to largest (in amount, not interest rate). Then start attacking the smallest debt and pay minimum payments on the rest. Once that’s paid off, take that payment and add it to your next debt and so on until all your debts are paid off.
Step 4: Fully fund your emergency fund which is 3-6 months of expenses. You can download an emergency fund worksheet from Bankrate. It’s a PDF that you can view or print. To get the 6 month emergency fund, you just need to multiply each line by 6 instead of 3.
Step 5: Then start investing and grow your net worth.
This is not my plan. This is from Dave Ramsey who is a great Christian finance guy. I’m going to do a review on one of his books so stay tuned for that.
A great place to put your emergency fund is a high yield online savings account. I’ll have another post on some of the savings accounts that I use.
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Ok, well maybe not, but they still are a very bad deal. Here’s an excerpt from another great financial blog creditpro:
“Another common problem that I encounter on a daily basis has to do with payday loans. While these may appear to be a quick and easy way to get money for rent, bills, credit cards, etc., the first loan is simply the start of a cycle where you are continually further and further behind on your payments and in need of even more money. Before you know what has happened, you are left in a downward spiral of overwhelming debt.
In most instances, my clients only need a few hundred dollars to pay their bills, so they head over to a cash advance store and put up their future paycheck in return for a no credit check loan. However, things start to get a little sticky when you discover that this place is charging an exorbitant interest rate, sometimes as much as 25% for a two week advance. To put this into perspective, if you borrow a rather modest $200, you could end paying upwards of $50 for this “quick and painless” loan. And once you have paid off your bills and repaid the loan, you may see that you are still a little short on cash due to the unexpected interest payment, so you need to take out another loan. Well, there goes another $50 dollars, meaning you just paid $100 in interest for a one month loan of $400.
Although throwing away $100 a month will not affect the livelihood of most individuals, the people who are taking out these cash advance loans are usually making minimum wage and working hard to make ends meet. It may appear that these operations are taking advantage of the low-income earners plight, but the government has said payday loan stores are not predatory and fulfill a crucial role for some people. I wholeheartedly disagree with this considering that I have seen first hand how it can destroy a family’s life.”
National Payday suggests that all payday loans be used on a short-term basis only. Because payday loans are for small amounts and due on your very next payday, they should be based solely on need and urgency and should not be taken out for extended periods. It’s in your best interest to pay these loans off in full, or more than the minimum when extending.
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