30 Jan What Should You Spend Your Tax Return On? (hint: NOT a big screen TV)
Treat your tax return money (and any money you receive) as earned income, not as if it’s extra money to have fun with. It should go into your budget and should be used to pay down debt, build up your emergency fund, or to go towards your other financial goals. This does not mean you can’t spend it on anything fun, but not when it would be financially irresponsible. If you’re living paycheck to paycheck, or have mountains of debt, why all of the sudden is it ok to spend $1000 on a tv, or a vacation? The government isn’t just handing out cash to people as early Christmas presents. For most who earn over 40-50k, your tax refund represents your over payment of taxes throughout the year. So essentially you give the government an interest free loan all year, and then they give it back to you in a lump sum. Wouldn’t you rather have that extra money in your paycheck?
Many of us need to adjust our w-4 withholdings to do just that. It should be mentioned that many households earning under 50k do not actually pay (income) taxes. Instead they qualify for credits such as the earned-income and child tax credit and end up actually getting money they did not earn back. It is even more important for these households to spend/save this money wisely and not foolishly spend it. If you qualify for these credits there is probably much better things to do with this money than to spend it on consumer “wants”.
My personal opinion is to do away with the IRS all together in favor of a much less complicated fair tax system. This type of system does in no way punish savers, but instead places the tax burden on those who spend. The system as with any has it’s flaws, but so does our million page tax code. But that is for another post someday. I just wanted to get this out there before people start getting their refunds back. I know it is tempting to treat it like lotto winnings, but please resist the urge. If you get excited enough about getting out of debt it actually becomes fun to throw large chunks of money at it until its gone. (I know that sounds sick but it’s true) And if you’re married and one of you is a spender and one is a saver, come up with a compromise. Set aside a little to have fun with and be responsible with the rest!
In case you are wondering, a cool thing my wife and I decided to do with some of our tax return money is to officially start Claire’s ESA (educational savings account). It is a big accomplishment for us and it’s something we are really proud of. Our plan is to be able to cover half of our children’s college and leave the other half for them. That way they have a sense of responsibility and hopefully are encouraged to do well.
EVERYONE please click this link for me, it is to this same article but published on Yahoo (where I actually earn money on it), just take a second and click please! http://voices.yahoo.com/what-spend-tax-return-on-10906625.html?cat=25
Message to Claire: Not going to be too serious on this one. In fact it’s pretty simple. Try new foods. Start sooner rather than later. And don’t be afraid to try foods you think you don’t like. Whether they are prepared differently or it has just been a while since you have had them, you might be surprised. And whatever you do, don’t be like those people who only eat french fries. If so, I may have to disown you. (just kidding)
p.s. So far you are not very good at this, you won’t eat chicken unless its breaded. What’s up with that? But you did dip an orange slice in ketchup, so you get a point for trying something new there.