It’s tax season. Many retailers are excited by this because millions of families in the U.S. are preparing to receive their tax-refund deposit. Of course, Macy’s, Nordstrom’s, Footlocker, Amazon, and similar retail outlets have just the right “sale” to help you “save now” on “the items you need”. Please read this article in its entirety before you run to your car to spend $2,000 on Macy’s “One-Day-Only” sale that they will undoubtedly have next week. And the week after. And the week after that.
Now quick disclaimer: whether you believe philosophically that one should even have a tax-return is an entirely different conversation altogether. This article is for people who have already filed and are expecting a return this year. It is my prayer that those funds would be allocated judiciously and responsibly. Hence, I thought it would be helpful to outline a few recommendations to help families leverage their tax credit into economic gains for their household instead of economic gains for the retailers listed above. A kingdom paradigm on finances begins with basic stewardship principles. What you do with $2,000 is what you will do with $2,000,000, so it is important to develop healthy habits early on. However, keep in mind that these principles can be implemented at any time with any excess funds that may come into your possession.
1. PAY OFF HIGH INTEREST DEBT:
Many families are financially handicapped by excess high interest debt. Your God-given financial goals could be realized sooner with more aggressive payment of unnecessary revolving debt. For instance, if you have a credit card with a $5,000 balance and a 24% APR, then by making the minimum payment only, you are at least paying the credit card company $1,200 annually just for them to hold that debt. That’s not even taking into consideration additional fees that may be attached to the card. Thus, it is strongly recommended that you use a significant portion of your tax return to decrease (or eliminate) that balance. You can then reroute that monthly allocation of funds towards other financial goals, which we will delve into later on in this article.
An alternative way to deal with high interest credit card debt is to utilize a balance transfer to another card that offers a 0% interest window (i.e. 12 months at 0%). This option is not as attractive simply because a) it produces another hard inquiry on your credit report b) the opening of a new line of credit will bring down your average age of accounts, which can adversely affect your credit score, and c) the added benefit of an additional 12 or 18 months at 0% can sometimes inspire consumers to become less aggressive in eliminating the debt entirely. Learned behaviors are hard to break. Especially financial behaviors. Thus, if you end up going with the balance transfer option, make sure that you find someone you trust (i.e. a spouse) and have them hold you accountable to remaining aggressive on paying that debt off in full.
2. INVEST IN YOUR BUSINESS (IDEA):
Per a report published by the Global Entrepreneurship Monitor in 2015, only 14% of the U.S. population can identify as an entrepreneur. If you were to ask what is my personal opinion, I would say that percentage should be significantly higher given the long-term economic advantages of owning a business. Now earlier I mentioned that some hold the philosophy that one should not even have a tax return. Coincidentally, most of the people that I have met who hold this view fall into that 14th percentile. They (or their tax accountant) understand how to maneuver the tax code as to where they are holding their capital for investment purposes and writing a check (perhaps quarterly) for taxes “owed”. That is not to say that non-entrepreneurs cannot make similar maneuvers within their tax strategy, but honestly, it all comes down to educating yourself with the nuances of your federal/state tax law and taking the appropriate steps to decrease your tax burden. Again, that can be expounded upon in a separate blog, but I felt it was worth mentioning since we’re making a pit-stop on the subject of entrepreneurship.
Now for those who aspire to one day ascend to entrepreneurial heights within their vocational framework, I implore you by our Lord Jesus Christ the Messiah and Holy One of Israel to pleeeeeeeease invest in industry-specific education prior to investing in the business infrastructure itself. You need to study marketing strategy, logistics, scalability, varying sales models, etc. before you commit dollars to a business model template that you downloaded off the internet from someone’s WordPress website. Ignorance is expensive. Misinformation is even more expensive. Hence, there are ways to procure sound education in these areas that does not include racking up $4,000,000 dollars in student loan debt:
A. Find a mentor specific to your industry. LinkedIn is a great tool for this. Find people who are successful in the area that you desire to be successful in, and attempt to make a connection. Invite them out to lunch. Offer to pay a consulting fee for their time (you’ll find that many people will appreciate this, but ultimately waive it). Ask them how they invested their capital early-on. Pick their brain on strategy. Inquire of any potential setbacks that you should be cognizant of. Try not to depict yourself as a direct competitor, otherwise you may notice that they become tight-lipped and reluctant to share granular details of their success.
B. Work towards industry-specific certifications when applicable. When starting a business, developing trust is key. Often times potential clients will vet your credentials to see how much you have invested into your own development before they decide to invest in your product or service themselves. Many freelance websites offer additional badges or certifications that you can acquire by way of testing. Financial service professionals may push for a CLU, CFP, or ChFC designation. With that being said, do not become overwhelmed with the thought of acquiring every badge possible for the simple sake of having them to display. Simply assess your market, identify what credentials they value, and proceed accordingly.
C. Sometimes it is wise to join an esteemed network within your designated industry. This can open a wide door for subsequent networking opportunities that may prove invaluable later on. For example, if you are launching a marketing consultation practice, then it might be beneficial to join the American Marketing Association. Membership dues range from $50 to $270, but the resources that you receive in return could help forge relationships that will create economic yields, meaning the membership should end up paying for itself and then some.
D. Go to college (the right way). Sometimes, it truly is in your best interest to pursue additional schooling. If you desire to own a medical practice or an architectural firm, then furthering your education is going to unavoidable. No one is going to hire you to build their $100,000,000 skyscraper when you got your degree from a 3-month online program from IWantToBeAnArchitect.com. Yet, you can be proactive in applying excess revenues towards tuition for an accredited program, while simultaneously minimizing your reliance on student loans.
The best return on your investment is not monetary gain, but rather, lives being changed for the better. If you have an extra $4,000 in hand, then survey the needs of your immediate community. What schools need uniforms for their students? Does your church need funds to commission missionaries to spread the Gospel among residents in the seven countries that the U.S. government recently restricted from immigrating to American soil? Is there a family member that you know is struggling to make ends meet that could use some help? The Bible says “Whoever is generous to the poor lends to the Lord, and he will repay him for his deed.” We should never interpret kingdom giving as a “loss” or a detriment, but rather an opportunity to invest in God’s vision. Thus, prayerfully consider the areas of opportunity to minister financially, and the Lord will guide you accordingly.
4. RETIREMENT PLANNING
Unfortunately, this is an investment-focus that is often placed on the back-burner for far too long. The key is to start when you are young. Compound interest is one of the most powerful forces on Earth. Period. Depositing excess revenues into interest-bearing accounts and leaving them alone is a long-term financial habit that everyone should develop. If you are contributing 2% of your paycheck towards your 401K, but your company will match up to 6%, then you should look to bridge that gap as much as possible. Now some may argue that there are better ways to plan for retirement than a 401K, but that is a conversation that you should have with your Financial Advisor. The point remains the same: do not ignore retirement saving.
5. TREAT YOURSELF
I hesitated to put this one on here, but I believe it is worth including. However, I advocate that this is done last. If you have a $4,500 tax return, set aside 10% or so to do something nice for yourself after the remaining 90% has been invested, donated, stored away in a long-term savings vehicle, etc. If you follow this order of operations, you will find that the temptation to spend beyond the 10% designated amount, which in this case is $450, all but disappears since that’s all that remains. It’s a lot harder to only spend $450 when you still have the entire $4500 at your disposal. Again, treat yourself, but take care of business first. You’ll feel more accomplished and will come to value the improvement in your financial health.
I want to reiterate that this is merely a short-list of ideas, and that there are other wise applications of excess revenues that are just as viable as those outlined above. If you have any questions concerning any of the above material, please feel free to reach me on Facebook (Malachi Mustafa) or on Twitter (@lensofkai). I’d be happy to answer any questions that may come up. May God continue to expand your borders as you commit to shrewd stewardship and sensible investment of the resources He has given into your hand.
Malachi Mustafa is a graduate student studying at Liberty University, with a concentration in Church History. He has an ardent love for seeing Christ magnified through the Arts, and is working on several musical projects. He is married with two children.