Tax Refund: Will you Splurge it or invest it?

“Too many people spend money they earned to buy things they don’t want to impress people that they don’t like”Will Rogers

It is that time of the year again, when advertisers and marketers are ready with alluring offers and too good to be true deals for you. It is time to get the tax refund and it is your choice whether you want to splurge your money or invest it in a low cost fund or IRA, but a careful evaluation of your financial goals will help you decide better. There are certainly great deals on the table and if you have always wanted a big-ticket item which is available at a discounted rate, it is smart to make a purchase. But many a times we all are easily persuaded by marketers to spend our hard-earned income on unwanted items. At that point, it is important to ask, “Whether investing my tax refund will help me achieve my financial goals” “Do I have enough to splurge on vacations and other luxury items without thwarting my financial goals?” It is difficult to resist temptation of spending money and enjoying a better lifestyle and it requires a great deal of self-control to save and invest that amount and grow your money tree. Believe me you enjoy expensive getaways if you don’t have financial worries and you have set aside enough for education and lifestyle. On the other hand, when you have to make a trade-off, it is wise to exert little self-control and defer gratification.

The famous Marshmallow Experiment was conducted by Stanford Researchers, which teaches the value of delayed gratification through an experiment conducted on children in the age group of 4-6 years, who were led into a room where marshmallows or their favorite sugary treat were placed on a table. The main purpose of this study was to find at what age a child develops self-control. The children in the experiment were given a choice to eat one marshmallow immediately or wait for 15 minutes and get two marshmallows. Most of the children ate their marshmallow as soon as the researchers left the room whereas some children waited full 15 minutes and earned a reward of an extra marshmallow or a sugary treat. The researchers conducted follow-up studies as well to see the outcomes. Children who waited 15 minutes achieved success in all areas of life whether it is their SAT scores or jobs or BMIs. So, the central idea is exerting self-control. As adults, we can learn from this famous experiment to exert self-control and make wise financial decisions. Here is how you can control your urge for splurging your tax refund.

Stop financial Distractions
The TV commercials or online ads are definitely distracting you from achieving your financial goals. Just like people who want to lose weight, shut their eyes or resist the temptation of eating a sugary treat, we need to shift our attention away from those commercials and ads. Similarly, in the Marshmallow Experiment, children used all sorts of techniques such as covering the eyes, turning away from the table and kicking the desks to shift their attention from the sugary treats. It is difficult to wait for 15 minutes, when you are a child. But, if they could do, we can do as well.

Invest Before you Have Your Refund
It is important to make a provision of investing the amount you are going to get from Uncle Sam. In other words, assume you are not going to get any refund at all. This means that you need to be harsh on yourself. If you have not filed your tax return yet, make such an arrangement that you schedule your payment into your IRA or 529 savings, the very day you are going to get a refund. If the refund money is in your account, you will definitely spend it one way or the other. But, if you have already set-up an automatic investment, you will refrain yourself from spending. This will help you come to terms with situation and you will be bound to shift your attention away to most important tasks in hand rather than going shopping or planning your vacations.
By following the aforementioned tips and taking cue from the marshmallow study, you can attain financial freedom and a true financial freedom is when dollars work for you instead of you working for dollars.

“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this” –Dave Ramsey


Benefits of Investing in a 529 College Savings Plan

This post is inspired by this comment “The best investment that you can make is in yourself”, which was made by a reader. Indeed, the best investment is to invest in your personal development or the development of your loved ones. Speaking of development, college education is the best way to enhance your skills. If you have children, you are definitely thinking about saving money for their college education. Now, as a savvy parent, you can not only invest in the future of your child, but also get to grow your investments tax-free. Of course, college money does not grow on trees, but it grows in a 529 savings plan. While parents know that investing in a 529 college savings plan is important, some of them are caught up with other expenses such as mortgage payments or saving for 401K. If you are already living your American Dream and have home loan payments to make, it is time to organize your finances so that you make a systematic investment in your child’s future without hurting your nest. Here are some tips that will help you to save and grow your money systematically for your child’s future.

Savings vs. Debts
For those, who think that it is wise to make the debt payments before starting to invest in a 529 plan, you are right. However, all debts are not expensive, as long as you understand the benefits you are getting from keeping the debts like your home loans. Your home loan definitely offers you an advantage in the form of tax rebate for interest you have paid towards your mortgage. If you have any credit card debt or personal loan with high interest rates, you should definitely think of paying that off completely. You need to a little bit of calculation to make the right selection. So, if you are thinking of putting less in your child’s 529 plans and put more towards your home loan, you are losing the financial leverage, because your money tree is growing tax free. You can get this free money, as long as you are using the withdrawals for qualified educational expenses.

Now or Never
For college savings, sooner you take action, better the results. If you are planning to completely defer college savings, be prepared to bear the additional cost. Whatever amount you are setting aside now is growing and adding up fast. Your money is working for itself, while yielding you a higher return. If you delay starting 529 savings plan by few years, you might have to end up saving more in order to achieve your goal. So, start today with whatever little you can and then go on adding to it. You should rather do it today. If you are skeptical about how much you are going to get in return, the answer is definitely more than what you are getting now (which is nothing). So, do not wait for another year.

Scholarships vs. 529 Savings
You must be thinking “My child is an A+ student and will most definitely get scholarship from the best of colleges and that will take care of the education.” College education involves several other expenses such as college supplies, books, etc. Your savings will help your child meet all those expenses. Savings in a 529 plan can also be transferred to siblings or any other family member. If you wish to go back to college, you can use this amount as a qualified expense and increase your earning potential. If at all, you want to withdraw you can do so by simply paying the taxes on your earnings, provided you are withdrawing the amount matching the scholarship amount, otherwise you have to pay 10% penalty for non-qualified withdrawals.

A 529 savings plan not only offers many benefits, but also encourages you to save more for the bright future of your children.

The great aim of education is not knowledge but action</em>”- Herbert Spencer.

Investing Lessons I learnt from “Shark Tank”

I think your worst weakness can become your greatest single strength”-Barbara Corcoran.

Well, I am not a venture capitalist and neither do I buy businesses. Of course, I am not a shark in the ocean of investing. I am just a beginner in the world of investing. When it comes to investing, I am a small fish, but I use some of the tricks to invest in stocks that the sharks use to invest in entrepreneurs. You don’t have to invest a large sum of money or buy a huge equity. You can buy a small portion of stocks or funds by investing just a few hundred dollars, yet your strategy to swim in the ocean could be similar to that of the Sharks in the tank. So, here is what I learnt from the Sharks, you can too.

Mass Market
Look for the companies that are appealing to mass market whether it is Technology sector or a retail business. So, next time if you are thinking of investing in a particular company, just see if the company offers product for a small segment of customers or does it target mass market. Companies like Walmart appeal to masses and use the best business models to cut costs, whereas companies like Whole Foods offer organic grocery product and yet make money by appealing to a small segment. But, the Sharks go with masses. So, put on an investing hat and think like a shark before you invest in a Walmart or a Whole Foods.

Another lesson that I learnt from the Sharks is to always look for scalability of a company. Whether it is Netflix or Amazon or for that matter eBay, it is important to see if the company has a growth potential. All of these companies started small but are now selling tons of products. So, you must do the research to find the next big thing and invest in that company to make profitable returns. So, next time when you hear of a new entrant in the mass market and you like the product and get your value for money, follow the trend of the company for a few months. Read more about the future strategy and see the sustainability of that company for over a period of 6 months and then you know the answer. Guess what, you will become an expert.

Value for Money
There are special segments for rich and then there are some companies that offer the best deals to just everyone and give value for money. Whether it is Walmart with the motto of cutting costs for consumers and allowing consumers to live better by more savings or it is McDonalds that packs the punch in a buck ( I am not taking about the health concerns or eating habits, my point is value for money). So, what does this tell about the sharks. If you watch carefully, sharks have affinity to those products that can be sold in Walmart or other retail chains and are priced moderate to low. So, companies that allow for cost cutting to add value to their customer’s wallet are always going to be loved by one and all. Next, invest in those companies that add value, because they will never be out of business.

At the end of the day, it is about making right choices whether you invest in a start-up or an established company, do a little extra research and you will make more money.

“Money is a scoreboard where you can rank how you’re doing against other people”–Mark Cuban

Women and Investing

A woman is like a tea bag – you can’t tell how strong she is until you put her in hot water”- Eleanor Roosevelt.

International Women’s day was celebrated all around the world by highlighting the achievements of women and encouraging them to do more and better in all walks of life. In fact, tech giant Microsoft urged young girls to stick with science, bringing our attention to the fact (read stereotype) that women are so wired to loathe math and science. However, it is just a myth. In fact, many people feel that women lack financial wisdom and are not good investors. Oftentimes, men think that women are so obsessed with shopping for clothes and fashion accessories. Well, women are fashion-conscious but we (women) are savvy investors too. Since antiquity, women have proven their worth in all areas of financial wisdom whether it is making a wise purchase or saving for a rainy day. I firmly believe that money saving and budgeting habits are the first step to investing. But, there is more to investing than saving and that is where women can make a difference.

Careful Evaluation

Contrary to the popular belief, women actually carefully weigh in all the options before buying even an everyday item and they prefer to invest in only those products that stretch their dollar and give them a full value for their money. Men, on the other hand, indulge in impulsive shopping. So, the tendency of women to carefully choose all options and their intuitive nature definitely helps them in arriving at the right decision. Whether it is buying right home at the right price or buying stocks, women are equipped and so genetically wired to make informed decisions.

Risk Avoidance

Warren Buffett’s advice to investors is “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1” and women follow these rules sincerely. It is a common belief that women are risk averse. However, women do not take unnecessary risks and are twice as prudent as men. Again, call it intuitive power or sixth sense; women know it when to plunge in or stay away from the boom market. Women often use their conventional wisdom to sense the danger, while men go with the impulsive

Less is more

Again in the words of Warren Buffett, “You only have to do a very few things right in your life so long as you don’t do too many things wrong.” So, by that thumb rule, women prove to be better investors than men do. Women remain loyal to a particular brand (which they have chosen wisely) for years together and they don’t deviate much when it comes to buying decisions.  However, men by virtue of their over-adventurous nature try too many things when it comes to investment services.

Patience is a Virtue

When it comes to investing, you cannot just trade your funds at the drop of a hat. In fact, many men prefer high frequency trading with their computers. Women by nature are persevering and believe in long term and cautious planning. One needs to think through and stick with certain funds for a longer period of time in order to get long term benefits.

Think like a queen. A queen is not afraid to fail. Failure is another steppingstone to greatness”- Oprah Winfrey.

Beginner’s Luck in Investing

“Success is neither magical nor mysterious. Success is the natural consequence of consistently applying the basic fundamentals”-Jim Rohn

For years I felt that investing money in stocks or mutual funds is a risky business and that no one seriously makes money by investing in stocks. Those who boast about making money by investing are just a bunch of lucky people. I firmly believed that instead of investing in stocks and mutual funds, it is beneficial to invest in real estate, where the returns are high. But, things changed when I started to think about the college savings plan for my children. It was the time to brush my financial knowledge (My specialization in Bachelor’s was finance and accountancy) and be the financial doctor. I realized that investing is an art which everyone seriously everyone can master. With little effort, you can also take care of your financial health and you will get lucky along the way. Believe me, it is not rocket science. So, follow these simple steps and get into the habit of systematic investing.

Know What You Own

First step towards your success is to know what you own and what you owe. It is important to know your net worth and to get to this you need to sit down and organize your finances and take stock of your incomes and expenses. In the beginning, it might take you some time to get organized and keeping the track of your income and expenses is tedious. You may have to skip your favorite TV shows for a few days, but trust me it is rewarding to get organized. Once everything is organized, everything is a cake walk.

Take Small Risks

If you are wary of risks, then here is the golden rule. Start by saving some portion every month and invest systematically in a fund where the risk is minimal. You don’t have to start big to achieve big goals. If you set aside a small sum every month without fail, you will see how pennies will convert into dollars. Although, you can take advice from a certified financial expert, investing requires breaking the financial barrier and little common sense rather than specialized financial knowledge. So, get into investing mindset and trust your wisdom.

Set Realistic Goals

Many people are afraid of entering into investing game due to lack of knowledge, while others are too greedy and want to make quick bucks. There is nothing to fear about and of course there is no such thing as get rich quick. You need to give yourself some time to learn and understand the game and by investing in a disciplined manner you will definitely gather some tools that will help you make the right decision and get rewards. In fact, your rewards are directly associated with your goals and your efforts. So, set the right financial goals and develop the habits to achieve those goals. It is up to you to decide whether you want to keep your money in 401K plan or start a 529 savings plan, but ultimately it is the process of saving systematically and setting an achievable goal that is more important.

Cut some Unwanted Expenditure

In the words of Jim Rohn, “You cannot change your destination overnight, but you can change your direction overnight.” So, the best part of getting into some serious investing is giving up on your habits of spending and splurging. In the process of investing (saving) you are actually cutting down some unwanted expenditure, which is definitely rewarding in the long run. If you have to make an investment of $1000 a month, you will definitely find ways and means to save that amount, which you would otherwise splurge.So start expecting less and do a due diligence before you invest and you are sure to get lucky in the game.

My personal Tip- If you want to make fortune, spend a dime less than you can and save a dime more than you can and you will see the magic of accumulated savings.

“Discipline is the bridge between goals and accomplishment”- Jim Rohn