What to do when your tax-returns come in

In The Netherlands, this is tax-return season. Many people who filed tax-returns on time, have already received either the bill or the return. So I might be a little late with this post – but better late than never, right? And if the word “taxes” bores you, maybe that is exactly the reason for you to keep on reading! I’m not a tax-expert, so this will be an easy post for you to understand for sure. But it will help you!

Apparently, in the Netherlands, not everyone actually fills in their tax-returns. Especially youth and young adults often don’t bother to do it (all my young Dutch friends, check out this post by the Consumentenbond). But also adults whose living situation has barely changed over the years, apparently don’t take the effort to do it! In The Netherlands, it’s tempting to do that because the whole system is automated. You barely have to do anything yourself. But that is exactly the reason to take a little effort to do it! 

If you are in the group of the people who have received their return, let me just encourage you in a this post! I know it’s really tempting to spend most of what you receive. Maybe you have been saving for a big expense and with this sudden income, it seems like the right time to splash out. And in time where internet-shopping is at an all-time high, it’s so easy to spend on stuff quickly! We have also found ourselves buying things we wouldn’t usually buy. A Kubb game set for example. A new cast iron pan. New make up (Intan, not me). I’m not saying “don’t spend”, but I’m saying “don’t spend it all” and “don’t spend mindlessly”. 

So besides spending wisely on things you really want, here are just some tips on what to do with your tax-returns!

(1) Give

That’s right, give! I’ve even ordered this as the first one. We really believe that giving is a good thing to do. Whenever our salaries come in, the first thing we do is give. First we give to God. We give to church. We also give to charity. We believe it’s good to give. We believe it’s more blessed to give than to receive. 

It is more blessed to give than to receive

Acts 20:35b

And also, we believe that we are blessed. We live in relative luxury; and I guess most people reading this post do as well. Most of us should be capable to give to something we believe in and to those who are less fortunate. 

We make a living by what we get, but we make a life by what we give.

Winston Churchill

I remember some time ago talking to colleagues who could never imagine giving away a standard portion of their income – at least not a significant part. There is no judgment here; I completely understand how easy it is for us to let our expenses match our income and leave barely any space for generosity. However, I also think that if we never take the effort to set a habit, it will not appear magically in our life. Habits take effort. Financial habits also really take effort. Maybe this tax-return season is the perfect opportunity to give a decent percentage of your return. Maybe you know someone and COVID-19 has hit them hard financially. This is your opportunity. Maybe there is a cause that you identify with. This is your opportunity. 

If you can’t feed a hundred people, then just feed one.

Mother Teresa

(2) Invest

My last post about finance sparked a lot of conversations about investing. Several people have contacted me to talk about how they can take their first steps in investing. Several people have asked what actually would be a good percentage to invest. These questions are all quite personal; the answer depends on your personal financial situation and your personal financial goals. However, there are some things many of us can do to get a good idea of what we can do:

  • Investigate mutual funds. Mutual funds are in themselves diversified as they are funds, managed by a professional and consist of many different stocks, funds and/or bonds. Most (at least Dutch) banks offer periodic investment schemes, so you can invest set amounts per month. It is usually quite transparent what running costs are and what the historical returns are. It is really worth looking at these returns; not all mutual funds perform better than the market on average. Mutual funds offer you the opportunity to invest in sectors that you are excited about. 
  • Check out stocks. There are many websites that allow you to investigate stocks. Pick some companies that already interest you and start following them. Check out some websites like iex.com and fool.com to learn something about investing and then invest in a company – preferably for the long run! As most of us aren’t professional investors, we should only try to beat the market if we really understand it. Otherwise it’s probably wiser to invest for the long run and let the market be the market. 

If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.

Warren Buffett
  • Index trackers. Index trackers work a little bit like mutual funds, but the main difference is that they require less active management. They are built-up to reflect the movements of a complete index, like for example the AEX (Amsterdam exchange index) is reconstructed by several trackers. On average, investing in index trackers means that your returns reflect the general market returns, which in the long-run should be better than the interest on your savings account. The running costs for index trackers should be low – this is something to watch out for.  
  • Finally, it really is worth talking to a coach if you are still not sure. It is really worth taking some effort in understanding some basic principles of financial markets, because they will help you for the rest of your life! You really want to understand – not just execute.

“Risk comes from not knowing what you are doing.

Warren Buffett

(3) Save

Finally, save part of your returns. Intan and I have a guideline of saving 10% of all our income – so that is what we try to do every month and that is what we did with our tax returns. If your savings exceed your savings target, it is worth to re-evaluate your savings percentage. If you don’t have a savings goal yet, set one! It is wise to work towards a buffer. So if your washing machine or car breaks down, you can buy it. Obviously, this COVID-19 season has caused a lot of people to wonder whether they have saved enough. It is wise to think about what you should be saving each month – and it’s probably the wisest thing to not save what is left at the end of the month, but to set something aside once you receive your income!

If all of the above is challenging for you, or if it seems like it’s all not achievable due to your personal circumstances, please reach out to someone! Financial difficulties do not have to resolved on your own. 

Did you think this was useful to you? Go ahead and read my post on Five things you really should be doing with your finances! There will be some overlap between these posts, but there is something helpful for you in there for sure. 

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