From Refund to Riches: How to Turn a $2,300 Refund into $723,000!

With tax day upon us here in the United States, a lot of people will get a refund soon. So today, we’ll discuss how to turn that refund into riches.

But this blog is really about “found” money – money you weren’t expecting. The average refund last year (paid in 2007 from 2006 tax returns) was $2,287, according to the IRS.

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That’s a nice down payment on a plasma TV!

That’s what a lot of people do – spend their refunds on things that won’t be worth much in a few years.

Instead of that, you could save and invest it. But isn’t that’s boring?

Boring can be exciting when your money starts to compound!

How to turn your $2,300 refund into $643,000!
Say you’re 25 years old and you get a $2,300 refund every year until you retire at 65. We’ll assume that you earn 8% on that money, which may be a little conservative depending on what you invest in.

Under these assumptions, that $2,300 a year invested will turn into a nest egg of over $643,000 when you retire!

Now is that boring?

Age makes a difference. Take the previous example for a 35-year old. Your nest egg is still significant – it’s over $281,000. But by waiting just ten years to start, it will be less than half as much!

But even then, you still create a nest egg of nearly $300,000.

2 ways it can be even better

#1 – Quit loaning the government money at 0%.
That’s what you’re doing when you get a refund – you’re getting your money back, but you don’t earn any interest on it while they hold it. So redo your W-4 so you only withhold what you expect to owe.

Then you won’t get a refund, but you’ll have more money in every paycheck. But here’s the key:

Let’s say you do that – Invest your refund check this year, adjust your W-4, and then invest the extra money that shows up in your paycheck. You’re that 25-year old we talked about earlier. Only now …

… you’ll have over $723,000, instead of $643,000. It makes an $80,000 difference!

Doesn’t that open your eyes about the “cost” of a refund?

#2 – Pay off debt that’s costing you more than 8%.
We assumed an 8% return. If you have any debt that’s costing you more than 8%, pay it off first and your returns will be even higher! Once your debt is paid off, start investing to build your nest egg.

Jake’s Take – Top 5 signs that you hired the wrong accountant

#5 – He insists on filling out your return using only Roman Numerals.

#4 – He offers to help you boost your deductions by renting you his wife and kids.

#3 – He spends most of your consultation looking nervous and asking if you're wearing a wire.
 
#2 – He does all his calculations on an Etch-a-Sketch.
 
#1 – His client list includes Leona Helmsley, John Gotti, and the Unibomber.

Our bigg quote today is a Proverb.

So do you want to watch your new plasma TV or do you want to watch your money grow? The choice is yours!

Next time, we’ll discuss why being imperfect is perfect. Until then, here’s to your bigg success! 

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(Image by gossamerLL)