It’s Called Currency

Every year, around tax time, I hear and have conversations where folks are looking forward to a big fat refund check. They are so happy to be getting a chunk of money back from the government. What I want to know is why they gave the government an interest-free loan in the first place. Especially when they probably needed the money themselves.

I mean, don’t they realize that the $1200 they get back was $100 a month they paid too much? Had they put that money in the bank, rather than sending it to the government, they would have at least earned some interest on it. And they have now missed out on whatever opportunities would have presented themselves each month where there was an extra $100 to spend or save.

Most people who get big refunds consider it “bonus money” rather than a repayment of money they already earned. Because they are not in the habit of saving for big-ticket items, they simply blow the refund on whatever large toy they’ve been eyeing this year, thereby compounding the problem. Not only did they give the government a loan without interest, they then blew the money when it was paid back to them, money that may be needed later.

If you’re in this refund pattern, please, PLEASE take the time to refile your W-4 with your employer to correct the error of overwitholding. It will be like getting a raise, and you can use that money to your own benefit every month rather than waiting for the government to give it back to you in a lump sum so you can blow it. You can still pay yourself that annual “bonus” by having the increase in your paycheck automatically deposited directly into a savings account. Then, in May or June, withdraw the money and spend it on whatever you wanted. Or, just keep on saving it and watch your Emergency Fund grow without changing one other thing in your life.

Tags: saving, taxes // Add Comment »