Saturday, March 7, 2020

What to Do with a Large Amount of Cash such as an Income Tax Refund

Last week I mentioned that I had filed for my income tax refund. Every year around this time I make a list of thing I need to purchase with this refund. The list includes things such as new shoes, yearly health club membership, car repairs, new tires, Insurance payments, new clothes, etc. 

Since I have a variable income I've always needed to be organized and decide beforehand what items I would spend money on after receiving a large sum of money. I wouldn't want to spend the money willy-nilly and then have nothing to show for it as that would be irresponsible. 

So, with that in mind here is a list of things you could do with a lump sum of money. 

Pay as many of your bills that you can in advance, especially if you can get a discount for doing that. Car insurance is one example where I can save money if I pay for the six month premium verses the three month premium. For those who live paycheck to paycheck keep in mind that any extra cash will allow you to pay current bills without getting hit with late fees, which will also save you money. 

Use some of the money to open a bank or credit union account. Last year an H & R Block employee told me that many taxpayers asked for their refund be placed on the H&R Block debit card because they didn’t have a bank account. I can't imagine not having a bank account and think everyone would benefit from having a checking and savings account.  Tax season is  a good time to open both types of accounts. 

Build or start an emergency fund. Many personal finance experts mention saving $1,000. Others recommend saving one, two, or three months worth of expenses in your emergency fund. Getting a large sum of money is the perfect time to begin to build your own emergency fund. 

Pay off or pay down a credit card or a debt. This is an excellent use for a large amount of cash. Paying off a credit card will save the debtor from having to pay interest on the amount of debt owed. This will also free up more cash in the following months. 

Take a class that improves your job marketability. This doesn’t have to be a university or community college class, but can include job skill seminars and resume building workshops. The videos I've been watching of Ramit Sethi includes such things as building your own resume and self development programs. His videos are a wealth of information on making yourself more marketable. 

Purchase the supplies that you need to organize grocery store coupons. You can purchase one of those large coupon binders, or an index card box or an accordion file. To save money use some of the supplies you already have on hand like paper clips. The cost of this project will vary depending on which method you use. 

Buy those items you need in your kitchen in order to cook at home. This could include an Instant pot, crockpot, griddle, new pots and pans. I received one of those copper skillets for Christmas and I love it. It's made clean up in my kitchen a breeze. Need new spatulas or dish towels? Now is a good time to buy those things you need. 

Buy some plants for your garden. Do you want to have a garden with raised beds? Having a large sum of money is the perfect time to invest in a garden. Buy fruit trees and you'll reap the benefits for years to come. 

Buy a sewing machine. A sewing machine is a useful tool for making clothing repairs, making household items such as curtains, and creating items that will save you money over the long haul, such as cloth pads. 

Buy a tool kit or tool box for the house. It will be easier to do minor home repairs when you have the proper tools. Doing it yourself will save you money too. 

Inventory your disaster supplies. If you live in Tennessee you know the chances are good that your power will go out several times a year.  Do you need to buy a hand-crank radio, cooler,  generator or any other number of things to help you make it through without having to spend a small fortune. 

These are just some of the ideas I've come up with that we could do with a large sum of money. I know you will have many good ideas of your own to add to this list. We'd love to read what you would do in the comments. 

Belinda
~ Living within our Means ~
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18 comments :

  1. Great suggestions. I just sent my Aunt a new sewing machine as hers died. That is how she makes money and if she can't earn it then I get the bills, so I used some of our small return to purchase that for her.

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    1. Oh, that is terrific, Kim. You really are saving money by he;ping her to earn her own income. I love that.

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  2. I used my tax refund to pay extra on the mortgage, to build the home repair savings account, and a very small amount went to ‘fun money’ fund. 😊

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    1. That is an excellent idea, Nil. I wish I had thought of it and I'm glad that you put it into the comments. I have a fun money section for mine too. That's my favorite part. LOL

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  3. Usually, mine was very small. I would buy a pair of shoes and lipstick and put the rest on the bills. Some friends wanted to spend it on fun exclusively. They lost their houses and cars because they wanted fun first.

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    1. Oh wow, that is so sad. Sounds like they had their priorities out of line.

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  4. From my experience over the decades, an emergency fund is critical to managing debt. 6months expensee will cover car repairs, tires, broken appliances, roof leak etc. Those 'big' things that cause stress. Such a relief to write a check and not incur debt.

    After that, kill debt! However, if there are true needs, 10% toward those first.

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    1. Excellent advice, Elle. Thank you for sharing.

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  5. For the first time in a long time, we were able to transfer our refunds directly into savings. It was a great feeling. You listed some great ideas above.

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    1. Thank you, Penny. That's terrific that you were able to transfer yours directly to savings. That must have made you feel so good. :)

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  6. Used ours to do some much needed larger repairs on my Jeep. Though the repairs ran $1,600, being that keeps last so long, I was able to justify the cost. My husband's little Civic, though cheap to repair, is no longer adequate for our 3 growing girls so we are using half our refund to purchase a used Dodge journey with third row seating. The remaining amount I am using to take a career training course in certified medical coding and billing as my part time job is becoming too part time after the owner merged two stores, and their employees together.

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    1. Oh wow, I am sorry to hear about your employment woes, Nichole. It's a great idea for you to take some more career training courses as we don't know what tomorrow holds.

      Car repairs are a good thing to spend a large sum of money on because people don't always have a large sum of money to spend on car repairs. My Mom got a car last week, a 2012 Chevy Cruz for $5000.

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  7. We owe again (the way our salary is handled vs stock means we always owe, as we can't adjust the withholding for our stock), but when we receive large sums of money, we typically split it between our mortgage paydown & the boys college funds. We already have an emergency fund, so those are our next two places.

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  8. We will f ind out Monday if we get a refund. Fingers crossed. Depending on the amount, a portion will go towards the HELOC and a portion will go into savings.

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    1. That is great, Lisa. Keeping my fingers crossed that you get a refund!

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  9. Belinda, our government has just announced that it will be giving a one-off payment of $750 to some members of the Australian community as part of a stimulus package to try to mitigate impacts of Coronavirus on our economy. These are really good ideas for how that money could be used. Meg:)

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    1. Thank you, Meg. That is wonderful that your government is doing that. $750 will definitely come in handy.

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