Sweet tax refund
It’s the tax season again in US. If you are expecting the sweet tax refund checks, probably you can’t wait to file the tax returns. Yeah, the tax filing offices are lit up again.
The long-forgotten tax accountants are back. They are smiling, and counting the extra dollars in their pockets. As the mid April deadline is approaching, they are becoming the most beloved professionals in this country.
Very soon, we are going to see those hard working people on the curbs of busy streets. They are either lifting up the big signs with tax business names, or simply dress up with the unique costumes to solicit tax business.
The weather is still not that warm in February and March in Central Ohio. Standing there for 8 hours, dancing around against the wind, the people always remind me that, life is tough, and making money is hard.
Okay, finally you got the tax refund. What are you going to do with it? What should you do?
I saw many people who squandered the $4000 or $5000 refund within a month. Yes, within a single month. Can you believe that? They go to the malls, fancy restaurants, vacations, and spend like a millionaire. They live like there is no tomorrow.
But tomorrow does come. At the end of the month, they are back to square one. Bills are unpaid, and money is short for kids’ necessities. Washer is broken, and they are scratching the head where to get the money to buy a new one.
I hope you don’t live that way. It is too stressful. You and your family deserve much better than that. Let’s figure out how the tax refund should be used.
I suggest you save 100%. This is why:
For bonus, it is something extra, and unexpected. It’s okay if you want to splurge a bit, and I suggest maximum 10% of the bonus. Save the rest of 90%.
The tax refund is different. 100% should be saved. It’s your own money. Over the year, you overpaid the tax through the payroll. The refund is just getting your own money back from the Uncle Sam.
If you get too much refund, probably the best way is to adjust your W-4 form with the HR. In this way, every month you’ll get a little bit extra on your paycheck. What should do you with the extra money? Save it, and invest it. Spending is not an option.
For some people, the temptation is always there. Not touching the money is hard. If that’s the case, don’t put them into your checking account. Hide them into your savings account, somewhere you don’t see it often.
At the end of the day, we should treat money in a responsible way. If we could not control the impulse, how could we help our young kids to learn the money management skills? Kids are watching every step we do.
The family finance matters a lot in the long run. Continuously saving and investing is the only way to get to the financial independence.
Save 95%, and splurge max 5%:
If you can’t live without touching the tax refund, splurge no more than 5%. The hard limit has to be set. So, for $4000 refund, you can spend max $200.
Is $200 a lot of money? Yes. If your hourly wage is $10, assuming your effective tax rate is 20% (including Social Security and Medicare tax, federal, state, and local tax), you’ll have to work 25 hours. That would be 3 long days, plus one more hour.
With the new technology, it didn’t make it easier to earn the money. But it made the spending so easy. Just swipe the card, or one click on the internet, the money is gone, forever. Why rush? Slow down, my friend.
My point is: money is so hard to make. Once the money is in your pocket, use it wisely and consciously. Spending without a thought is not a responsible behavior, unless you have tons of money.
In my case, I don’t remember the last time to get a tax refund. It must be a long time ago. To me, working on the tax return is not exciting. Usually in late March, I start collecting the tax forms, and work on the hassles myself. Try to wrap up everything in two or three days. At the end, I’m just sick of the tedious forms, and tell them: “bon voyage”, and “see you next year!”
Have you filed the tax returns for 2017? Are you going to get the sweet tax refund? What’s your plan about the money?
Take a look at my eBook, a mini-memoir on Amazon: “DAD’S BICYCLE: Journey of A Chinese Family”.