Let Every Windfall Build Your Net Worth

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Let Every Windfall Build Your Net Worth

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In 2010, the average Federal income tax refund was about $3,000.

A lot of households count on that windfall -- which is really just Uncle Sam paying you back for extra money that you advanced him over the course of the preceding year -- to cover incidental expenses or to pay for a major purchase like a new television or refrigerator.

In this post, I'm advising you to steer away from that habit. Instead of spending your tax refund -- or your bonus at work, or money you get from moonlighting -- I suggest you use it to build your net worth.Let Every Windfall Build Your Net Worth

Don't Trade Off: Pile On

As a comparison, think about the way that many people who stay overweight manage their waistline. When they eat right, they use it as an excuse to skip working out; when they work out, they use it as an excuse to have more beer, or to eat as much dessert as they want.

This is like spending every windfall you get.

Meanwhile, what behaviors do you notice from people who take the weight off and keep it off? They might skip the occasional workout, but they try to eat right all the time. And they might have the occasional dietary splurge -- but in the context of a consistent exercise regimen.

Rather than making tradeoffs, they pile on the benefits of regular exercise and healthy nutrition. Over time, this creates a snowball effect: good exercise tones muscles and burns fat, good nutrition feeds muscles and eliminates fat, each habit reinforces the other, and their health level goes up and up and up.

This is the equivalent, in financial terms, of increasing your income at the same time that you rein in your spending. If you keep doing that for very long, you can't help but get ahead.

Capitalize on Income AND Outgo

I'm convinced that too many of us -- especially if we struggle with handling our finances -- aren't challenging ourselves to be better at this thing we call "capitalism." Sure, it's tough to get ahead if you're living hand to mouth. I've been there.

But, for many of us, what feels like a hand-to-mouth existence is really just a case of too much "outgo" for the income we have. In other words, we're not mastering the basic lesson of capitalism: whoever holds onto their money (i.e., their capital) gets ahead. It's not so much about having a lot of money -- though that certainly helps -- as it is about holding onto more of the money that does come our way.

I'm not saying you need to pare back your grocery shopping to red beans and rice, and I wouldn't tell anyone to deny themselves every consumer pleasure. Unless you're really committed to a monastic existence, that kind of living can wear you down emotionally. For that matter, I don't think that most people would achieve the highest satisfaction by chasing every last possible dollar of income. (We'll leave that to the titans of Wall Street, eh?)

But many of us could easily . . .

  • Cancel the cable TV subscription
  • Drive a less expensive car that gets better gas mileage
  • Join a cheaper gym, or cancel the gym membership and work out at home
  • Eat out less (Confession: that's the big one for me!)
  • Make a little extra by moonlighting or other means
  • Plow every windfall into emergency savings, then debt retirement, then long-term savings

Once you start piling up these benefits -- whether from decreasing outgo, increasing income, or both -- you can't help but be better off. The more of them you pile up, and the longer you pile them up, the better your chances of being much better off.

So, here's my advice to you, in three easy steps:

  • 1. Start piling up benefits by banking your IRS refund instead of spending it.
  • 2. Each month, find one more little way of cutting your outgo to bring it well below your income.
  • 3. Keep on keeping on.

Tell me, what are your plans for your IRS check this year?


Tim Walker Tim Walker

Tim is a writer, marketer, and social media pro living in Austin. He joined CareOne's blogging team as a contributing writer for the Life Balance blog in 2009. As a blogger who has personally overcome debt challenges, he draws from his own experience to provide tips on living a balanced life and keeping fit. You can read more of his thoughts (on fitness and everything else) at his personal blog, What I've Learned So Far. Compensated CareOne Blogger

Follow Tim on Twitter; @Twalk or follow us by clicking here!

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  • Hello, I am rashmi. its so beautiful side in this online. The amount of time it takes to pay off your debt can be slashed if your creditors agree to stop charging you interest.


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  • I agree Tim!  I always save my refund every year.  For those who have a difficult time doing so, putting at least half into some sort of savings will be beneficial!

  • Are you ready to reap? It's getting to be harvest time for farmers, but I want you to think about what you're ready to harvest in your own life.

  • This I like!

  • Will you want that same thing a day, week, month, or year from now? Or is it something that will still be available once you are debt free? Will it be that much more enjoyable because you have it free and clear? Only you can decide that.

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