Tax refunds in the mail
The good news: Americans are getting tax refunds. The bad news: For most people, it’s not exactly a financial windfall.
The federal government started issuing checks in mid-July $300 checks for individual filers and $600 for those filing joint returns and will continue to do so through September, under the $1.35 trillion tax-cut budget plan passed this year.
While some South Shore residents will sock away that money, others plan to spend their checks digging their way out of debt.
The credit card came upon its 50th anniversary last week, amid a report that on the average each American household carries $5,000 in debt.
Many pay the minimum payment due. At a 15 percent interest rate, someone owing $8,000 and paying the minimum would need 47 years to pay off that amount.
Eve Harrison of South Lake Tahoe is baffled by that line of thinking.
“We’re not one of those to just go out and blow the money because we have it,” she said. Harrison plans to stick her household’s refund check in the bank.
“We don’t believe in interest,” the convenience store owner said as if it was she and her husband’s religion. She knows some of her customers live from check to check or from “minute to minute.”
She observes subtle actions, like regulars who buy one soft drink at a time every day instead of a 6-pack.
In some respects, Harrison blames the credit card companies that, at all costs, try to get consumers hooked on buying on time.
But honoring and using the time value of money and paying off that credit card, grants the most benefit over the long haul, local financial planners from South Lake Tahoe to Reno say.
“The government is giving you back your money. They’re giving you an opportunity. They are so convinced that people can’t handle their money. If we all saved it, we could send a message,” financial consultant Cheryl Sillings of Brookstreet Securities Corporation said Monday.
Sillings suggested investors “put it somewhere and forget about it,” so they’re less apt to blow it.
She also recommended opening an individual retirement account, which requires no minimum. The maximum amount goes up from $2,000 to $3,000 at the first of the year.
An alternative is for people to apply the money to their mortgage, in this way the money would go farther than if it sat, almost dormant, in a basic savings account at a low interest rate or under a pillow.
Mutual funds are also wise investments for a quick tax refund.
“With this small an amount of money, mutual funds are the way to go,” she said.
And don’t be afraid to buy tech stocks. There are some great deals out there for those who are selective and buy low. However, human nature draws us to buy high when the investment represents more of a sure thing.
“It’s a natural fear. We don’t want to be the last one on the dock when the boat is leaving,” she said.
Edwards Jones financial planner Greg Herback agreed.
“I’d put it to work,” Herback said of the tax refunds, recommending growth-equity diversified funds that are inexpensive now.
Still, those saddled with debt should pay it down first, he added.
Well, here’s a thought. Reno Certified Public Accountant Scott Wait suggests using the money for a financial management workshop.
He cites the statistic that only 5 percent of the American public saves as good reason for people to be honest about their finances and educate themselves about other ways to manage them.
That’s how South Shore resident Eddie Montanucci figures he will be able to retire this September at 53 years old after 30 years with Albertson’s.
Montanucci, who paid off his credit cards every month, advocates practicing reasonable discretion when it comes to spending money. So now, he’ll use his tax refund to take a trip to Flagstaff, Ariz.
“Don’t go spend-happy with it because some time there could be a long winter,” he said.
Tanya Medina, who plans to buy a cord of wood and pay bills with her refund check, thinks living in South Lake Tahoe is more difficult than many areas because of the cost of living.
“There is no room for extras,” she said, adding she spends 75 percent of her income on rent. The black financial hole forced her to think seriously about buying her mobile home.
“I’ve had a lot of friends who have had to move,” Medina said.
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