Wednesday, April 13, 2011

What to do with your tax refund?

Income investors do not like to have money that is not earning money.  If we receive a tax refund, it means the money we deposited with the government is a tax free loan.  We get no income on that money; we received no advantage when our money earned nothing.  Remember either our money works or we work.

However, income investors are no different than other investors in that
we do not want to pay penalties or interest on our tax obligation.  My gosh paying for money is the absolute opposite of our goal of making sure our money makes money.  Therefore, we make sure we pay enough tax to protect us from penalties and interest.  Because paying for money is worse than just not getting income from money, we can send the IRS more money than required and  we receive a tax refund. 

Pundits can make you feel so stupid that you paid more taxes than you had to, yet you would be very surprised to learn how often folks move into and out of tax brackets.  You predict the income you had in 2006 and 2008 happens.  So don’t be too hard on yourself if you get a return.  Think of it as forced savings.  But do not lend your money for no income any more often than you have to.

So what should you do with your tax refund?

As my mother in law would say “answer for yourself this question.” “Do your income investments create enough income to cover your basic monthly expenses?”

Answer (a) Yes.  If your income investments create enough income to meet your basic monthly expenses, then either spend, gift or save your money and rest with no worries.

Answer (b) No.  If you still need to increase your investment income in order to meet your basic monthly expenses, or if you are saving for future investment income, you should consider adding a dividend machine to your portfolio.

Frankly, I would love to get enough money from insured certificates of deposit or from insured bonds; but at this very time, in spite of all the turmoil internationally and within our own government, dividend machines are a best bet for reliable and ever increasing income.

A friend of mine, a very savvy woman, warned me that market is going down.   Do we care? Yes we care because when the market went down in 2008 we hated it.  But our dividend machines continued to pay and by and large increased the income.  And, when the market goes down, you get a chance to buy on sale!  Be alert; invest your refund in an income producing investment.

Very Truly Yours,

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