How Did You Spend Your Tax Return?

Tax season can be a time of frustration or jubilation for many of us.  Getting shafted on your return and having to pay even more in to the system can obviously be painful.  On the flip-side, coming out on top and getting a swell return can cause elation for many.  So far, I have been one of the latter people, but as time goes on and my salary/income increases, that could change.

One thing that pains me is seeing folks get a solid tax return, and instantly scream, “I’m going to Disneyland!”  Or something of the like.  Many folks get a very nice first-time homebuyers credit.  Some of them put it towards their home.  Others may do less money-efficient things with it.  Getting a tax return is a fantastic way to give yourself a boost in net worth.  If you’re having trouble getting started with your financial journey, getting a solid return can help give you a kick-start.

It’s okay to reward yourself now and then.  Dropping your whole 1,500 tax return on rewarding yourself/family is not the financially ideal way of doing it.  The most important things to do are to: pay off existing debt, and get started with retirement/portfolio investment as early as possible to get those reinvestments rolling.

The past few years I was able to get very solid tax credits in relation to being a college student.  This past year, I was unable to get any of those credits due to graduating over a year ago, so I was just hoping to come out even and not have to pay in.  Turns out I was able to land a $1250 tax return!  The only credit received was a $200 credit for investing over a certain amount in my Roth IRA.  The funny thing about that was that I would have been ineligible if I had made over 30,000.  My documented income was 29,500!  I barely squeaked by, but was able to get a free $200 because of my retirement investment.

So, how did I decide to spend my tax return?  I will provide a breakdown of what I did and how much was allocated to it.

Initial Return: $1250
Step one: Pay $70 for tax service (TurboTax)
Step two: Roth IRA.  I invested $350 into my Roth IRA, which provides dividend and capital reinvestment anually.
Step three: Portfolio.  $350 went to a purchase of UHT, which provides a solid 4.47 dividend yield.
Step four: Credit card.  $200 went to credit card “debt”, which I was NOT losing money on due to 0% interest.  I decided to move my normal balance to 500 from 700.
Step five: Student loan.  $200 went to the current 6.55% student loan I’m paying off, on top of a regular $300 payment per month.
Step six: Profit!  I paid myself the remaining $80 to enjoy in whatever way I will.

Now, let’s see how much hypothetical money I made for myself over the next 10 years by reinvesting most of my tax return instead of taking a vacation with it.  Steps one, four and six are null because they have no financial implications (remember, my credit card is 0% interest and the balance will be paid in full when that time ends).
Step two: Using the Roth IRA Calculator at Bankrate.com, and using a 7% annual gain, my $350 would turn into $689!  That’s a 96% increase.
Step three: Using a DRIP calculator at hughcalc.org, I used a 5% annual gain and constant 4.47% div/yield for my UHT purchase.  My initial $350 purchase would become $865, a 147% increase.
Step five: My #6 student loan is sitting at 6.55% and I applied an additional $200 principal to the balance.  That saved me $131 in interest using a calculator at webmath.com.
Total hypothetical money saved/earned: 339+515+131=$985!  NICE!  I almost got my whole tax return back in compounded interest/reinvestment, and interest savings.  Not a bad way to spend my tax return.

Always think before you act.  Would you rather buy some fun material things or go on a vacation, or instead invest in your future and save yourself even more money with your free money from the IRS?  I would pick option number two every time!

Here are a few things that have helped me and others I know get a good tax return:
*Do your own research, and think before you just go to any random tax place.  I personally use TurboTax.  It’s cheap, user-friendly, and very thorough.
*Always exhaust your ability to get tax credits!  Even some “professionals” are unaware of college/other tax credits (I know someone who was told twice by a major tax business that they were ineligible for certain tax credits or that they didn’t exist – they went to a smaller business and found they were indeed eligible and they did exist).
*Claim the highest amount of taxes to be taken out of your paycheck.
*Invest in your future – tax credits are available for people investing in retirement & make less than 30,000/yr.  This was in my case being “Single” marital status.
*Pay off existing debt.  It’s always good for you, plus paying mortgage interest is a good way to get helpful deductions.
*Keep track of tax-return related expenses.  Per diem, work related costs, and other things help you get deductions.

I’m sure there are lots of other things, but those are ones that I have had experience with, or know of others who have.  If you have any valuable information to contribute, please feel free!  Also, how did you spend your 2015 tax return?  Did this post help you make any different decisions than what you normally would?  Let me know below!

A Reason To Love The Red: A New Stock Purchase

It’s warming up outside and it’s a beautiful day.  The stock market on the other hand is cold as can be.  However, there are positives to these red days.  When the majority of people are freaking out and selling like mad, or thinking they’ll never make their money back, people like us are taking advantage and making purchases of our “waiting list” stocks while they are cheap.  Today was one of those days for me.  The market has been doing iffy lately, and today it was abysmal, so I decided to make another purchase to add to my portfolio.  I am very excited about this one!

Universal Health/Realty Income Trust (UHT) was on my list for a while now and I’m happy to have finally made the buy.  UHT is a “Dividend Champion”, and has been providing timely and steadily increasing dividends to their shareholders for over 25 years.  Their most recent dividend was $0.63.5 cents, and they just announced another disbursment about two weeks from now.  UHT is an REIT that deals with the healthcare industry.  It sports a very attractive yield % of 5.14, and like I said, the Champion class (like the AT&T purchase recently).  UHT’s P/E is around 12, which is attractive to me – as an established company with a low PE I am estimating it will stay pretty steady over the years to come.

Another reason for this buy was to further add to my diversity inside the portfolio.  Before this buy, I had two powerhouse large-cap stocks including Telecomm: Industry and Cyclical Consumer Goods/Services: Industry.  This will add some cap diversity with the introduction of a small-cap stock and another sector (Financial: Industry).

I am looking forward to having UHT deliver some excellent dividends to DRIP and amplify my holdings!

Portfolio overview:
Ford – 5.086 Sh – 84.90 Basis – 3.28 Total Div – Large Cap – Cyclical Consumer Goods/Services: Industry
AT&T – 7.099 Sh – 239.97 Basis – 3.30 Total Div – Large Cap – Telecommunications: Industry
UHT – 7 Sh – 346.43 Basis – 0 Total Div (4.44 coming Mid-March) – Small Cap – Financial: Industry
Total – 19.18 Sh – 671.30 – 6.58 Total Div
Total “Eaten” Commission – 14.85 – This is not counted in Basis, I choose to “eat” the commission – pay it once and forget about it, never to be seen again.  Not to be included in the portfolio at all.

Disclaimer: I am not a professional and am not to be taken as such.

February Net Worth

Assets

Lil’ Sizzlers Portfolio:
Total Market Value: 326.18 (-3.26)
Total Divs: 5.18 (+0)

Cash:
1390+360 = 2050 (+168)

Roth IRA Basis:
3057.21 (+110.01)

Roth IRA Cap Gains/Divs:
+78.04 Gains (+99.43)
+46.21 2014 DRIP
Total: +124.25

CC Cash Back:
20.00 (+6)

Motorcycle:
3,500

Car:
1,700

Personal Assets:
4800

Total Assets:
15,577 (+396)

Liquid Assets (cash, stock and retirement):
5577 (+419)

Liabilities

Chase Freedom:
700 Payment Bal (Zero % APR) (-100)

Bank CC:
21 (+0)

Student Loan:
26,508 (-207)

Total Liablities:
27,229 (-307)

Net Worth:
-11,652 (+693…. Woot!)

Net Worth w/o Student Loan & Last Pmt:
15.156 (+486)

Monthly Income: 1,860
Monthly Assets Change: 396
Monthly Liabilities Change: -307
Monthly Net Worth Change: +693
Monthly Savings Rate (ret/inv/cash/loan): 31% ($578)

I had another strong month in decreasing my liablities and increasing my assets, but I could have done a lot better.  Everything looks great until we get down to the Monthly Savings Rate, where we see an abysmal 31%.  This is not where I wanted to be.  Last month I dumped $250 into investments, bringing my rate up quite a bit.  That $250 should have been somewhere this month, but it wasn’t.  I spent a lot of time with friends and the girl eating and going out on the town.  Plus I dropped $70 on my taxes, but that will pay out this month with a $1250 return!  Definitely not happy with my savings rate this month, but I still did end strong and make positive changes!