Lauren Rebbel, Partner, at Prosperity Consulting Group in Owings Mills envisioned a career in veterinary medicine when she started at Western Maryland College (now McDaniel College). One job shadowing and a fainting spell later she realized that may not be her actual path but something more closer to home was. Growing up, her mom was a secretary for a stock broker at Dean Witter. Lauren gave financial planning a try and interned at Legg Mason.
Instead of fainting, she fell in love.
“Financial planning isn’t what I intended to do but when I saw the difference it could make in a person’s life I fell in love with it.”
That love deepened when she became a mom twice over. It was a mindset change she experienced herself and one she saw in her clients. Money became less about dollars and cents and more about how they could contribute to their children’s lives and to society at large. (Sound familiar?)
We spoke with Lauren to get a some tips on how to best use our tax refunds to fund those long terms desires for ourselves, our children, and our communities.
family finances: what to do with your tax refund
Tips from Lauren Rebbel
Build Your Emergency Fund
It is important to have 3-6 months of living expenses in an emergency fund so that should something happen families can stay afloat. Having an emergency fund allows for the unexpected every day events to not be as stressful. Creating cash flow really allows people to feel secure. This also prevents you from dipping into other savings or using credit cards.
Pay Debt Down
To build wealth you need to invest in stocks or real estate, things that grow and provide income. Before that can happen it is important to build financial freedom by creating cash flow and securing your future (see tip#3).
Credit cards are not cash flow. They can be a useful tool if you are able to pay off the balance completely each month otherwise you are compounding interest in a negative way. The interest rates can sometimes be double of investment rates. Unsecured debt can create a lot of stress for families.
I think the highest interest rate should be paid off first. Or, as an alternative, pay the smallest balances off first to gain a sense of accomplishment.
Fund Long Term Dreams
There are two simple solutions that are powerful first steps to help fund you and your child’s futures.
A Roth IRA is a specialized individual retirement account that can be funded in addition to maximizing your 401k plans at work. After tax money is invested and grows tax deferred. Withdrawals at 59.5 years of age or later are tax free as long as you follow the rules.
Investing in a 529 college plan allows after tax money to grow tax deferred until needed for college expenses. From tuition, room and board, books and supplies, a 529 plan will allow you and your family to save for what can be a very costly but necessary endeavor. Birthdays and special occasions throughout the year can be opportunities to encourage family to give to the fund instead of giving lots of toys or things that have less long term impact.
Ideally families would fund both types of accounts by splitting the tax refunds. However, if you had to choose remember that there are many ways to fund college while there are far less ways to fund your retirement. Whatever you choose the hardest thing about either option is simply opening the account.
Keep in mind these accounts are usually created in addition to savings accounts. Savings accounts can build liquid cash flow but they tend to have very low interest rates, do not keep up with inflation, and are not tax free..
Build a Legacy
I see clients investing more in charities that they are personally passionate about. Giving back and having a positive impact has become a line item on the budget for many women. Women want to make a difference beyond their own backyard.
Another way to build a legacy is by getting the next generation involved in sound financial principals and habits that can lead to financial wealth. It is a decision making process that can be taught at an early age. Talk to your kids on how you are using your tax refunds. Show them how to save, spend, and budget money. Start with basics like managing a piggy bank then gradually move to a saving account then a checking account. When children begin to have W2 income, parents can open up a Roth IRA for them.
These habits build over time and have long term impacts for both children and parents because they teach financial responsibility. It changes the conversation from money as a stressor to money as a powerful tool which can change the life you are building for you and your family.