A new big screen TV? A new set of golf clubs? A vacation? What are YOU planning on doing with your tax refund from Uncle Sam? Whatever you do, don't make a quarter-million dollar mistake!
If you're like most Americans who receive a refund, the world of instant gratification is beckoning. It could be extremely damaging to your retirement account, however, especially given the time value of money and what Albert Einstein called "The 8th wonder of the world" – compound interest.
According to the most recent IRS data, nearly 8 out of 10 Americans get a tax refund, and the average refund was about $2,800, or $233 per month if averaged out over the course of a year. But is it really a refund? No. No, it's not. It was already YOUR money. You worked hard for it and earned it outright.
You just let the government borrow it (interest free, mind you) for an entire year. Stop looking at your "refund" as though Uncle Sam is doing you a favor. He's not.
What should you do with this new found wealth? Let's look at the numbers…after all, math doesn't lie.
I like to be conservative with estimations, especially given our most recent interest rate climate. So let's say you save your money in a vehicle that earns you 6% annual interest and you have the discipline to continue to deposit your $2,800 every year for the next 30 years.
If you DON’T understand how compound interest works, you might think, OK, $2,800 per year X 30 years = $84,000 X 6% = $5040.
$84,000 + $5040 = $89,040. Wow! That's a lot of money! Makes sense, right?
But you'd be wrong. Just how wrong?
In fact, according to the calculator on www.BankRate.com, $2,800 invested annually at a 6% compound interest rate will yield you $250,727.
That's an EXTRA quarter-million dollars in YOUR retirement account - just for being disciplined and not blowing your "refund" on things that provide instant gratification. Or... maybe you really do need that new big screen TV?
At TZG Financial, we show people how to use safe-money solutions to grow wealth over time.
To visit the calculator used above: http://www.bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx#ixzz41TiSjeAy