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Tuesday, March 08, 2005
Mary Hunt is the creator of The Cheapskate Monthly newsletter, which can be ordered online at www.cheapskatemonthly.com/um. You can e-mail questions or tips at cheapskate@unitedmedia.com or Everyday Cheapskate, P.O. Box 2135 Paramount, CA 90723. All correspondence becomes the property of Cheapskate Monthly.
A tax refund? Get serious
We need to talk about tax refunds -- seriously. If you love your tax refund because it means a big check in the mail, you're not seeing things clearly. If you think of your tax refund as a beneficial forced savings plan, I need to help you adjust your thinking. If you view this as a little gift from Uncle Sam, you and I need to talk.
The only reason you're getting a refund is because you overpaid your tax bill. You wouldn't do that with your other bills, would you?
Consider this response to a bill: "Dear Sirs, I know my mobile phone bill this month is $39.95 but I thought I'd surprise you and send in $300. Just do whatever you want with it and we'll settle up later."
Pretty dumb, huh? Such a proposition is even dumber if the phone company makes you fill out a complicated form and then wait for months to get the overage returned to you. But that's exactly what you are doing every payday. If you're getting a tax refund that means you have been overpaying your "bill," telling the government to keep what they need and send you the difference when it's convenient.
You may argue that if you didn't over-pay your taxes, the difference would be so negligible in your paycheck you'd simply spend the extra cash. You justify the overpayment as a painless way to save. I understand your reasoning, but have you considered at what cost you are allowing this to happen?
Do you ever run out of money before payday and feel you have no choice but to use your credit card to get by? Your revolving credit card balance is what you have to show for your generosity. How much sense does it make to pay 18-percent interest on a credit card account so you can make interest-free loans to the government?
Here's an easy solution: Divide your refund by your number of pay periods in a year (12 if you're paid monthly, 26 if bi-weekly, 52 if weekly). The result is about how much you're overpaying each pay period. Or go to www.irs.gov and type "withholding calculator" in the search box to get help with the details. You'll need your most recent pay stubs and most recent tax return to fill in the information that applies to your situation. Use this information to fill out a new W-4 Form with your employer. Increasing the number of exemptions you claim by even one will result in fewer dollars withheld from your paycheck.
But wait, you're not done yet. If you don't have a separate savings account, open one. Arrange for the difference you'll see in your paycheck to be automatically deposited into your new savings account each payday. There. Your net take-home amount remains the same. You won't miss your new savings deduction because you aren't used to getting it on a regular basis anyway. Now you're in charge of managing your money and that's the best feeling in the world.
~~~~~~~~~~Pamela~~~~~~~~~~~
Mary Hunt is the creator of The Cheapskate Monthly newsletter, which can be ordered online at www.cheapskatemonthly.com/um. You can e-mail questions or tips at cheapskate@unitedmedia.com or Everyday Cheapskate, P.O. Box 2135 Paramount, CA 90723. All correspondence becomes the property of Cheapskate Monthly.
A tax refund? Get serious
We need to talk about tax refunds -- seriously. If you love your tax refund because it means a big check in the mail, you're not seeing things clearly. If you think of your tax refund as a beneficial forced savings plan, I need to help you adjust your thinking. If you view this as a little gift from Uncle Sam, you and I need to talk.
The only reason you're getting a refund is because you overpaid your tax bill. You wouldn't do that with your other bills, would you?
Consider this response to a bill: "Dear Sirs, I know my mobile phone bill this month is $39.95 but I thought I'd surprise you and send in $300. Just do whatever you want with it and we'll settle up later."
Pretty dumb, huh? Such a proposition is even dumber if the phone company makes you fill out a complicated form and then wait for months to get the overage returned to you. But that's exactly what you are doing every payday. If you're getting a tax refund that means you have been overpaying your "bill," telling the government to keep what they need and send you the difference when it's convenient.
You may argue that if you didn't over-pay your taxes, the difference would be so negligible in your paycheck you'd simply spend the extra cash. You justify the overpayment as a painless way to save. I understand your reasoning, but have you considered at what cost you are allowing this to happen?
Do you ever run out of money before payday and feel you have no choice but to use your credit card to get by? Your revolving credit card balance is what you have to show for your generosity. How much sense does it make to pay 18-percent interest on a credit card account so you can make interest-free loans to the government?
Here's an easy solution: Divide your refund by your number of pay periods in a year (12 if you're paid monthly, 26 if bi-weekly, 52 if weekly). The result is about how much you're overpaying each pay period. Or go to www.irs.gov and type "withholding calculator" in the search box to get help with the details. You'll need your most recent pay stubs and most recent tax return to fill in the information that applies to your situation. Use this information to fill out a new W-4 Form with your employer. Increasing the number of exemptions you claim by even one will result in fewer dollars withheld from your paycheck.
But wait, you're not done yet. If you don't have a separate savings account, open one. Arrange for the difference you'll see in your paycheck to be automatically deposited into your new savings account each payday. There. Your net take-home amount remains the same. You won't miss your new savings deduction because you aren't used to getting it on a regular basis anyway. Now you're in charge of managing your money and that's the best feeling in the world.
