Tax time: that exciting time of year when usually smart people start making really stupid financial decisions. Isn’t it amazing to see what a small extra cash, known as a tax refund, that covers your pockets can do?
Random online polls suggest that 61% of U.S. taxpayers expect to receive some sort of refund this year. While there are many ways to spend money, I thought today would be a good day to review the top five silly ways to spend a tax refund.
ACT LIKE FREE MONEY
The functional word in the term “tax refund” is “refund”! Common synonyms for refund are “refund”, “refund” and “overpayment”. Tax refunds are not free money. The government does not give you a bonus every year just to thank you for being so awesome.
This is money that you have allowed them to borrow from you all year round. And now, unlike most of your friends or family, they actually reciprocate.
Do not mind the fact that you made the loan WITHOUT interest, even though you repay it with interest on your student loans or credit card accounts. Do you really have enough money to lend some money to anyone, let alone the government, on these terms?
Smart move: If you usually receive a large tax refund, change your withholding (use this calculator to determine the amount to be deducted along with instructions on how to change it). Your goal is neither to owe nor owe you at the end of the year. If you can reach $ 100 from this goal, you are gold.
Before doing this – however polite – you need an emergency fund. If you are not able to finance your own future emergencies, you will never get rid of the debt because you will continue to run on credit cards for a rescue.
Smart move: Keep making regular debt payments and use the refund to set up the Emergency Fund. Then keep adding it until you reach your goal (enough to live at least three months without pay or $ 10,000). Then you will be in a good position to pay off your debt quickly and you will have confidence that you will continue to move forward when life happens.
MAKE ADVANCE PAYMENT
Make a deposit on a car, TV, furniture or any other item that will be converted into new monthly payments, also known as debts.
The burning sensation and the feeling of prosperity and wealth push people to spend money on a new car, boat, Disney vacation or whatever. What you need to remember is: After this down payment, you are still responsible for the annoying monthly payments that remain for much longer.
Although you are feeling well right now, remember that tax refunds are only made once a year. The joy of repaying your tax overpayment can quickly turn into a nightmare if you are not careful.
Smart traffic: Assuming you are prepared for an emergency, use the refund to clear your accounts, not create new ones. Never create a continuous debt with lump sums.
ESCAPE TO A LITTLE RETAIL TREATMENT
There is no doubt that buying new clothes, shoes, electronics or other interesting material is a great antidepressant, but it is silly. Once this buyer’s high price is over, you will immediately return to where you were – broken but with more stuff.
Smart traffic: Go for a brisk walk, spend time with your children, friends and family doing things that will not cost money. Most cities have a large museum or zoo that is free one day each month. Or go on a picnic. Take a bike ride. Explore your own city by Google your city name and “free attractions” to find all kinds of activities for free. You will be surprised. And you will feel much better as well.
LAY IT UNDER THE MATTRESS
It’s an idea, but not very good. Money under the mattress gains no interest and is vulnerable to theft and fire. But above all, it is vulnerable to you in a weak moment.
If you lose your job or face a real financial emergency, you will be very happy to be smart with this year’s tax return.
Mary invites you to visit her at EverydayCheapskate.com, where this column is archived complete with links and resources for all suggested products and services. Mary invites questions and comments to https://www.everydaycheapskate.com/contact/, “Ask Mary.” This column will answer questions of general interest, but letters can not be answered individually. Mary Hunt is its founder EverydayCheapskate.coma simple life blog and the author of the book “Living out of debt”.
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