April 15 is Tax Day, and nearly 90 percent of people have already received their refunds. The average refund at this point? $2,893.
That nearly $3,000 could make a big difference in your life depending on how you spend it. According to a bankrate.com survey, 34 percent of people will pay down debt, 26 percent will use it on necessities like food and bills and 33 percent will save or invest the money.
Paying down debt and paying for necessities are absolutely crucial. If you haven't done that yet, you can stop reading right here, my friends. However, if you're thinking about putting your money to work, read on for an investment that could make you $100,000 or more over the next 10 years.
Why Investing in Yourself Makes Cents
Of the many ways tech companies keep their employees happy, tuition reimbursements are one of the most innovative because it's an investment that results in better employees. Take a page from their playbooks by using your tax refund as an investment in yourself.
You can also consider investing in the stock market. CNN's tax return calculator does the math for you: If you invest $1,000 at eight percent (a hopeful stock market return), you'll have $2,159 after 10 years. Not too shabby.
If you’re working for $10 an hour, full-time, you're making $400 a week, pre-tax. That's $20,000 a year over 50 weeks. If you can get a raise at your current job (or get a new job!) to $15 an hour, that yearly total becomes $30,000. Each $5 an hour more you can earn is another $10,000 a year. So if you only do that one thing, that's $100,000 after 10 years. Compare that to $1,159 and see how investing in yourself can have exponential returns.
Here are three ways you can use your refund to learn more and be better positioned for raises, promotions and completely new jobs.
Learn from Others
You already know there are free online colleges and financial aid through sites like Coursera and Kahn Academy. With Coursera's specializations, however, you get a focused curriculum to master any number of skills, even if it costs you (in-state costs can range from $300-400 per credit hour). Besides, putting down some money can be a form of accountability, insuring that you actually finish the courses. To see an example of mastering MOOCs, check out this interview with Laurie Pickard of No Pay MBA.
If you want to get specific skills, look into workshops at an organization like General Assembly, which has a number of locations, as well as online courses related to topics like web program-ming, branding and design which can introduce you to new concepts at affordable prices (rang-ing from free meet-ups, cheap one-off workshops and pricier weekly evening classes).
Learn from Yourself
If you have an interest in business or entrepreneurship, there's nothing like firsthand experience. Check out Chris Guillebeau's $100 Startup for an amazing amount of resources and motivational anecdotes. If you want to see an actionable plan for launching a website, this redditor writes a month long guide to launching a project. He compares the amount he learned in that one month to a do-it-yourself MBA.
Create Your Own Opportunities
By earmarking some of your refund for future opportunities, you allow yourself to say yes more often. Put aside an amount in your monthly budget that'll allow you to do things like take a men-tor to dinner or drive to another city for a conference. You can free up time to focus on these op-portunities by outsourcing errands with services like Wash.io and Fiverr.
The temptation is to put money away for the future (or, let's be real, spend it!), but you should consider spending the money in an intentional, effective way. Investing in yourself is one of the best investments you can make.
When my husband came to find me a few weeks ago after putting together our taxes, I could tell from the look on his face that things weren't good.
“How much?” I asked, assuming right off the bat we were looking at owing money. Well, I won't share the exact amount--mostly because it pains me to even put it in writing--but let's just say we somehow managed to underpay the federal government well over $2,000 and as a result found ourselves dipping deeply into our savings account to come up with the funds we owed.
A Good Thing or a Bad Thing?
The funny thing about owing money on taxes is it's not necessarily a bad thing. Although nearly eight out of every ten people get federal tax refunds each year, some accountants will tell you that getting money back means you overpaid throughout the year and therefore essentially gave the government an interest-free loan.
On the other hand, there's the psychology of the refund to consider. Many people who get refunds don't necessarily expect to receive money back from the government, and although they've technically paid more than they needed to up front, they're able to enjoy their newfound money once it comes in. Along these lines, those who owe money unexpectedly often have the opposite experience--that they're suddenly being robbed of money they thought was rightfully theirs.
Regardless of where you tend to side in this debate, one thing's for sure: You don't want to owe so much money that you’re forced to pay a penalty. Usually you can avoid this if you:
- owe less than $1,000
- paid at least 90% of the taxes you owed for the current year, or 100% of the taxes you paid last year
Avoiding the Situation in the Future
Unfortunately, if you've discovered you owe money this year, it's pretty much a lost cause. But there are steps you can take to avoid owing money next year.
- First, check your withholding status--that's the amount your employer is taking out of your paycheck. Did you claim too many allowances? You may need to correct your W-4. You can also try using the IRS's estimated tax calculator to see if you're paying enough and then adjust your withholdings accordingly.
- Next, review other sources of taxable income. Did you earn a lot of money from a savings account or Certificate of Deposit? Did your investments pay dividends that propelled you into a higher tax bracket? Growing your money is never a bad thing, but if it causes an uncomfortable situation come tax time, you may want to rethink your current strategy.
- Finally, if you're worried about owing but don't want to overpay and lose out on interest, you can leave your W-4 as-is but create a separate savings account designated for tax money--money that, in your mind, isn't really yours. You can then put in money each month so that it accumulates over the year. If, come tax time, you see that you owe money again, you can simply dip into your special account to pay the government, as opposed to having to tap into your savings. And if you find that you don't owe on your taxes, that money is yours to keep, and you'll have earned interest on it as well.
This year's taxes were a major wake-up call for us. Although it was a lousy way to learn our lesson, we're already taking steps to get smarter and avoid a collective panic attack come April of 2016.
You've marked the date on your calendar, and you've done your best to get all your paperwork in order. But what happens if come April 15, you're just not ready?
If it's any consolation, you're not alone. According to 2009 data, more than 10 million people filed income tax extensions, and last year, an estimated 12 million taxpayers had no choice but to request more time. If filing on time just isn't in the cards for you this year, worry not. Requesting an extension is easier than you'd think.
How and When to File
To file an extension, simply fill out Form 4868 and submit it either by mail or online. All you need to do is file this form by April 15th and you'll be granted an automatic six months of leeway, thereby extending your deadline until October 15th.
Believe it or not, you don't need a specific reason to request an extension; the IRS won't care if you're filing your extension due to sheer laziness and procrastination as long as you do so on time. But if you happen to have a complicated financial situation, filing an extension is more than justifiable. The same holds true if you've yet to receive all of your tax information from your employers. This is something that frequently happens to freelancers and those who hold multiple jobs.
Another good reason to request an extension is to allow your accountant extra time to review your paperwork during his or her busy season. Many accountants find themselves overwhelmed in the weeks leading up to Tax Day. If you require the help of an accountant but can't find one to squeeze you in, an extension can buy you the extra time you need for a professional to assist with your filing.
The Downside of Tax Extensions
One thing to keep in mind is that filing an extension doesn't give you extra time to pay the government any money you might owe; all it does is offer you six extra months to complete your paperwork. What this means is that you need to have a general idea of what you owe the government by April 15th and pay that amount on time to avoid late fees and penalties. For many, this defeats the purpose of filing an extension in the first place.
Similarly, you must be sure to submit Form 4868 on time if you want to avoid a failure-to-file penalty. The failure-to-file penalty is usually 5% of the unpaid taxes that are due, whereas the failure-to-pay penalty is 0.5% of your unpaid taxes.
Another point to consider when requesting an extension is whether you're owed a refund. If you think you'll be getting money back from the government, you'll have to wait even longer for that refund check should you choose to file an extension.
So What Should You Do?
If you're worried you won't be able to file your taxes correctly by April 15th, be it due to a lack of information or a lack of time, your safest bet is to request an extension and do your best to estimate how much you owe the government. If you're convinced you owe nothing or think you might end up owing a truly minuscule amount, you can take your chances and wait till you've got your paperwork in order to whip out your checkbook. (The penalty for a $100 underpayment, for example, will be a mere $5.) But if you're looking at owing serious money, it's best to file that extension and pay up.
The average tuition and fees for full-time, in-state students at public four-year universities rose 2.9 percent from 2013–14 to 2014–15, according to the College Board report. The figure is higher for out-of-state students and those at private universities. Financial aid often does not cover all expenses; so many students seek additional ways to bring in some extra cash. One way to do that is to turn a hobby, interest or skill set into a way to make money. Consider any training you receive as an investment. You acquire a special skill that will benefit your career and your life.
For example, I chose to attend a yoga-teacher training program to not only save money on fitness classes, but to also help bring in additional income and set my own working hours. However, the investment was hefty: $2,600 for a 200-hour program over three months. I found that the program has opened many doors. Now I don't pay for yoga as much, which saves me at least $80–$100 a month, or more. I was also able to find a paid position teaching at least two classes a week with plenty of opportunities to pick up additional classes. I find that it has been easier than I thought it would be to make back the investment.
Turn a hobby into a marketable skill.
Not all skill-certification programs will require such a big expense or even your physical presence. You can take Web design and foreign language courses online, for instance. But although there are skills you can learn on the Web for free, certifications give you more clout with potential employers or clients. Many yoga studios require a Yoga Alliance membership or other certification to teach at their facilities.
It's a great idea to become proficient in a skill related to your major or job, but you can choose any skill that interests you. Perhaps you enjoy creating artwork or blogging. You might consider becoming proficient in Web design and then getting paid to create websites for people (perhaps other bloggers). Attending a lifeguard training program can help you make extra cash during the summers or school breaks. Massage therapists and fitness trainers are other options. People in these positions can work for themselves or at spas or gyms. They can work at multiple facilities and set their own hours.
Why it's worth it.
Often, acquiring a special skill offers additional benefits. As a yoga or fitness teacher, you have the flexibility to pick up as many classes as you'd like. It's easy to find a substitute for a class if you need to work on a school project. In addition, you may get discounts on food, merchandise or services at your studio. Also, earning cash while improving your health is a win-win.
Developing a special skill is an asset that looks desirable on a resume. Juggling school and working helps enhance your time-management and organization skills as well. In my case, becoming a yoga teacher shows that I have leadership abilities and helped me improve my public speaking. In addition, I can freelance write about yoga for publications because I am more knowledgeable about the subject.
Students looking for a fun, different way to make cash while in college have a myriad of options if they are willing to invest in themselves. Acquiring a special skill can pay off personally and financially.
You've probably heard the staggering student loan debt statistics like how the average student loan debt is at $30,000 per graduate, and more than three percent of graduates have more than $100,000 in debt attached to their name. Unfortunately, more than 13 percent of those student loans are in default. But they don't have to be. If you're struggling to repay your student loans, there are options you can take to tackle that debt, regardless of the amount.
One option to explore is student loan forgiveness. Depending on your loans and your qualifications, you may be eligible to get a portion or all of your student loans forgiven, or cancelled, after completing the requirements for the program. Keep in mind that many of these programs require specific loans taken out during a certain period and used for specific course study. Here are four different student loan forgiveness options to explore:
Find a job that offers a student loan forgiveness option.
There are jobs that offer loan forgiveness if you meet the standards and complete the requirements, such as working there for a specific amount of time and making regular student loan payments. Public service jobs often offer loan forgiveness, as well as teachers, lawyers and health care professionals. Keep in mind that not all loans may qualify for these programs. Also, in some cases, if you have defaulted on a federal student loan, you are no longer eligible to explore any student loan forgiveness plans.
Volunteer for student loan forgiveness.
Besides helping others, some volunteer opportunities will help pay down your student loan balance. Government related agencies such as AmeriCorps, Peace Corps and VISTA offer different types of loan forgiveness. There are also independent organizations that offer volunteer hours for student loan repayment such as SponsorChange.org and ZeroBound.com. As with any student loan forgiveness opportunity, you'll want to fully understand your obligations before signing up.
Move to a place that pays your student loans.
A previous brass article, "A city, a state, and province to help pay your student loans" points out that there are places that will offer some type of student loan forgiveness if you move to a specific location and abide by their terms. For example, in Detroit, you need to live in a specific downtown neighborhood and work for one of their specific companies. Counties in Kansas not only offer student loan repayments, but they also offer discounts on buying a home or land for college graduates.
Join the military.
Joining the military just to get student loans repaid is probably not the best option. But if you were planning on joining the military already, it is definitely a nice perk. There are many opportunities for student loan forgiveness in the military. Generally, you'll need to indicate that you're interested in student loan forgiveness prior to enlisting to be certain you and your loans meet the eligibility requirements. Opportunities will require you to serve for a certain amount of time to qualify for any loan forgiveness.
Struggling with outstanding debt? Stuck in a financial bind? You may have seen commercials for different pawnshops and same-day payday loans as a resource to alleviate debt quickly. While tempting, proceed with caution!
What Is a Payday loan?
Many of us have been there, and you're not alone. According to Pew's Payday Lending in America series, one survey shows that "5.5 percent of U.S. adults spend $7.4 billion annually at payday lenders." A payday loan, which is typically a high-interest, short-term loan with interest rates ranging from 300 percent to 1000 percent annually, usually start out as a solution to the problem but can often plunge you further into debt. The loan's APR, annual percentage rate of charge, depend on a few things: how the APR is calculated (nominal vs. effective), duration of loan, loan fees incurred, late payment fees, non-payments fees and loan renewal actions. Your APR represents the interest paid on a full-year loan. However, the term for most payday loans is only two to four weeks. For the average person taking out a payday loan, paying back the amount of money borrowed in two to four weeks is almost impossible. But this allows for the lenders to spike the APR rates and charge high levels of interest to people who can't pay back the loan in full within the time frame.
How to Get a Loan
The process of acquiring one of these "loans" is simple enough. Many payday lenders only require you to have a checking/savings account and a steady income. In fact, compared to car, school, home and even credit union loans, the process is easier than any other loan process I've experienced. Simply log on to the website, enter your personal and demographic info, choose the loan amount, agree to the terms, sign the contract and wait for a response that occurs typically within five to 10 minutes. After that, the money is usually in your account within 24 hours.
Pawnshop loans work a little differently. To begin you have to offer something of value in exchange for a percentage of the value of that item in cash. At the time of this exchange, the pawnbroker will give you a contract, which consists of the short-term loan and added high-interest rates. At the end of the terms of the contract, if you have not paid your outstanding balance, including interest and all fees, the pawnshop can keep your item or sell it.
A study done by Payday Loans Turbo shows that the average demographic of loan seekers tend to be between the ages of 25 to 44.This often included households with low-level incomes who may have been laid off or fired. Other characteristics such as race, marital status and people with children may be contributing factors to the number of occurrences of these loans. On average, borrowers tend to take out eight separate loans per year ranging anywhere from $300 to $500, and end up spending over $500 on interest rates alone.
Make Sure You're Ready to Commit
While a short-term loan may seem like the best option to save your skin in the moment, I would urge you to follow this advice:
- Do your research.
- Ask questions.
- Don’t sign a contract without fully understanding the terms you’ve agreed to.
The choices that you make today will affect your future, your credit and your ability to make big purchases like a home or car when the time comes around. While these options may have worked for some, your best resource may be trustworthy friends and family who will allow you to borrow a certain amount through the creation of a payment plan without the interest rates. I know I would rather be indebted to my family than in debt with an organization that makes no promises to actually scoop you out of debt.
If you feel like you're the only Millennial with financial problems, know you're not alone. In fact, 42 percent of Millennials say that debt is their "biggest financial concern". Additionally, half of college grads still rely on their family for financial support.
Not exactly a pretty set of numbers, huh?
Take a deep breath, and take a closer, more honest look at your finances. Let's start with your credit report.
What's a Credit Report?
A credit report is a snapshot of your debt at a certain point in time. It states how much debt you have, how often you pay this debt on time, the names of the creditors collecting your debt, the amount of debt past due, etc. (See sample credit report here.) This report is compiled by the Big 3 credit bureaus, namely Equifax, Experian and TransUnion.
To get a complete picture of your debt, it's best to get a credit report from all three. Each gathers credit information from different sources so they're bound to produce conflicting reports. You'd probably want to take the most conservative view on your report, because it's the basis for the number that'll make or break your credit standing: your credit score.
What's a Credit Score?
If a creditor wants to check whether you're "credit-worthy" or not, the first thing they'll look at is your credit score. This score is calculated from the following information on your credit report:
- History of payments
- Type of credit
- Total money owed
- New credit
- Credit history length
How Can I Improve My Credit Score?
There's no magical trick that'll wipe out your debt overnight, but you can try these tips on for size:
- Pay off your short-term debts first. These may seem small, but those nasty little buggers known as "interest" can pile up over time and do a number (no pun intended) on your bank account. If you can eliminate credit card debt -- or any short-term debts -- as soon as possible, you'll find it much easier to take on the long-term ones.
- Make an expense report. Take all your receipts, invoices and the like from previous months, and make a report. Tools like excel sheets or Google Docs help to organize your financial information.
- Create a budget. From your expense report, decide what you can cut or eliminate. To help you figure out an upper limit for your expenses, deduct your target monthly savings from your monthly income. If the resulting number is too low for you, you have two choices: lower your target monthly savings, or cut down your average monthly expenses.
- Lower monthly expenses. Managing debt when household expenses are through the roof can seem like an impossible task. Take a close look at your monthly bills and see what you can cut. Lose the cable and switch to Netflix. Check out what type of discounts you can apply to your car insurance. Many providers offer deep discounts for being a good driver or keeping your miles low. By keeping your monthly expenses as low as possible, you can apply those savings toward bringing down your debt.
Keep at It
Don't be discouraged if you're not seeing immediate, significant results to your efforts to improve your credit standing. Having a patient mindset and paying your debts on time is the key to turning your credit around.
I've been too loose with my money. This week I bought a new bike, made accommodations for a trip to Disneyland and spent more money on dinners out than I do on an entire month of groceries. What's turning my typical frugality into splurging? I'm getting my student loan refund on Thursday! While in the back of my mind I know that I will have to repay the $2000, another part of me is saying, "Woo hoo! I'm rich and I can finally experience the good life."
Luckily, student loans often sport a deferred interest at a low rate. However, this is not the case if you turn to banks or payday lenders for the same "fix."
I am not immune to the thrill of instant cash, and I'm betting many aren't either. So, why is the idea of getting money now so exciting to us, and how do many lenders use it to their advantage? Let's explore.
"Time discounting" is what psychologists call the phenomenon that takes place in our brain regarding money that will arrive in the future, whether in April or next week, that makes the money seem less valuable. In layman's terms this means that people put more stock in immediate rewards than in ones that will come down the road, even if they have a guarantee that they will show up. For example, if I knew my student loans didn't kick in until April, I would be a lot more careful about sticking to my budget.
Even simpler, though, it means you're likely to grab a $200 payday loan now instead of waiting a month to get a $250 paycheck. Your brain chooses to ignore that astronomical interest rate until it rears its ugly head on the top of the bill you have to pay. The favor goes to that which is immediate.
Why are some people less susceptible to offers of instant cash than others?
The answer may be in their prefrontal cortex: the part of the brain that processes executive thinking, including dwelling on the future consequences of decisions we make today. When we are under stress -- such as when we have bill collectors breathing down our necks, or when it's the first week of classes for the term -- this part of our brains tends to go offline. The amygdala, or emotional center, takes over. We then act with feeling instead of logic.
During stressful times, the need to have something now to take some of that stress away feels stronger than the need to be fiscally responsible over time.
Molly Crocket wrote in the Guardian, “The pressing demands of an overdue utility bill or an essential home repair may cause cash-strapped borrowers to fixate myopically on getting access to fast and easy cash.”
What to do to prevent falling prey to these practices? Tackle your stress head-on. Turn to exercise, meditation, journaling or another pastime that can help you worry less about the trying parts of your life. While all of us are prone to overspending when we shouldn't, it's important to look at the consequences down the road. It's rare that a person takes out a loan to satisfy some instant gratification and doesn't look back on that decision with regret.
I've been there: Your financial aid check is late and you need to buy books so you can do your homework. You had an emergency and had to pay medical bills. Now you're late on rent and your landlord is threatening eviction. The good news is just because you're out of money doesn't mean you're out of options. If you can't get a fee-free, interest-free loan through a family member, check into what your school has available. Many schools offer short-term or emergency loans, which can be taken out for a small fee, and are often interest free -- something that cash advances and credit cards are not. Some student councils also offer emergency loans. Before you take out an emergency loan make sure that you really need one. Be clear on the terms of the loan and have a solid repayment plan.
To be eligible, usually you have to be a full-time student, yet some schools offer assistance to part-time students, too. Additionally, there may be academic requirements, such as a minimum GPA. In some cases, you must not have defaulted on a previous emergency loan at the institution (or with the student government). Lastly, these loans are usually only available during a specified range during the semester, which often ends before the semester does. For example, the availability dates for emergency loans at Berkley for summer term in 2015 are May 26 through August 14, 2015.
Terms and fees
Most loans must be paid back within 90 days (see here and here for examples), though some loans have shorter repayment periods. Usually there's a fee associated with taking these loans, and it can be anywhere from a few dollars to upwards of $20. You'll want to check the specific terms of the loan before you sign anything. Some schools have caps on how many times you can take out an emergency loan. Commonly, there's a once-per-term rule: you can only take out an emergency loan once per term -- even if you repay the first one. There may also be a limit on how many times a year or how many times total during your degree program that you can take out a loan.
How to apply
Depending on your school, you may be able to apply online. Otherwise, you may have to visit the financial aid office, the business affairs or accounting office. Each school does things a little differently. You'll need to fill out an application, which may ask you to provide a statement regarding your emergency or unexpected circumstance. You may also need to provide evidence of your hardship, such as copies of bills or bank statements. You may be required to sign a promissory note saying you promise to pay back the loan. Once approved, funds are usually available within a day or two.
What loans can be used for
Each loan has its own stipulations. Some are for very specific costs, such as tuition, while others are meant to cover anything financial aid would. You'll want to check with whoever is issuing the check about what you are and aren't allowed to use the funds for. Common costs covered by emergency loans include
- utilities such as electricity and water
- school supplies
Emergency student loan programs are safety nets unique to college. They're relatively risk free since they're low to no-interest. The fees are low and often you know that more money is coming next term. Although they're often overlooked, emergency student loans are great resources for students in a crunch.
Getting a credit card has become a rite of passage for many young Americans. Whether it's acquired in high school or college, a credit card is a way to monitor extra spending as well as a tool for parents to help their kids pay for the extra life essentials. Also, building a credit score is essential for large future purchases.
However, having a credit card can backfire. Young adults taken in by the illusion of a free credit line might find themselves plunging deeper into debt as they tackle student loans and growing professional lives. Haunted by financial choices made years ago, the once shiny freedom is now a plastic nightmare.
According to the Wall Street Journal approximately 70 percent of undergraduate students in the United States take out some sort of loan to pay for their education, averaging in at about $33,000 per student. The average American home utilizing one credit card has a little less than $16,000 in debt at any given time, stated CNN.
Financial blogger Jason Hull writes about the way in which the human brain is actually wired to react differently to the ways we pay for goods and services. Brain scans show that pain is registered on a significant level when we pay for things in cash versus when we swipe a credit card, where almost no pain is registered whatsoever. The very act of handing over cash makes us experience a sense of loss -- our wallets get smaller and we know down to the cent how much we have left. Using a credit card is different; it's impersonal and we can swipe as many times as we need to in order to get what we want, which makes our brains feel good.
Whether we are purchasing our morning coffee, signing up for a 36-month lease on a new car or taking on a significant amount of debt to pay for college; sensitive bits of reasoning and behaviors are at play making our decisions, sensible or otherwise, seem rational. Part of this rationalization is analyzing how much debt we can incur compared to the result we are seeking like a new car or an educational degree. Plus, the personal and professional benefits that comes out of taking on debt.
Cognitive dissonance is the mental discomfort that occurs when we think two opposite things or hold two opposing beliefs. For instance, when we are in debt but don't think of ourselves as people who owe others, we seek to minimize this disconnect, which in this case involves paying off our debt slowly but surely.
A new normal
Socially speaking, being in debt has become so normal that it is nearly impossible to find someone who doesn't have a credit card or significant debt in their lives. The psychological stress of debt is well documented; physiological reactions to getting a bill payment in the mail or checking your loan to see how much interest has accrued can cause sweating, headaches, increased heart rate and feelings of anxiety. When you are swiping that card now or have your mouse hovering over the 'submit' button on loans for school, remember that this debt will be in your life for years to come.
If you're in debt now or are going to be in the future, keep in mind the ways your brain will minimize the real impacts of debt. No matter where you're at in life, finding a stable financial advisor to monitor your debt intake and credit card spending will keep you from cringing whenever you open your mailbox five or ten years down the road. Remember that some debt is worth taking on for a car, an education or a new home -- but not all debt is beneficial to your life, and the financial habits you form now will stay with you.