It’s tax season once again — and for many, it’s a time that they look forward to each year because it means they’ll be getting some money back with their refund. Though it’s exciting to think of all the things you could do while waiting for that extra money to arrive, that fact of the matter is, that money you’re waiting for — was yours to begin with.
Taxes are what keeps our countries and governments running. If we expect to maintain government funded programs, finance public projects, and preserve our freedoms; then it is a necessary “evil” that we need to pay our share of. For many people, they find withholding taxes directly from their paychecks to be the easiest way to pay their portion. While this method has been a proven way to see that their taxes get paid, the truth is that many people end up having more money withheld than what they actually owe. This results in the government getting a FREE LOAN from their citizens which only gets refunded at the beginning of the following year. While some of us see no harm in this approach, there are others that feel that their money should be better invested and not left in the hands of the government… at least until it is finally owed.
Understanding YOUR Situation
Let’s face it, the ability to save money can be a struggle to master. By withholding a percentage of their paychecks to taxes, many see the government as being a type of a savings account for them. Without it, they figure they’d just spend it senselessly anyway — and in all honesty — there’s no shame in admitting that, if that’s the case. The thing you have to remember is that everyone’s life and financial situation is different. If you find having the government hold on to your money to be the best way that you can save for larger expenses such as a new car, for example, then continuing to use the government as a savings account may be the best option for you. If you are interested in putting that money to work though, then it is important to ask yourself the following:
- What are my spending habits?
- Do I have the self-discipline to save money on my own?
- Am I able to properly estimate what my tax obligations will be?
A colleague of mine and I had a conversation just the other day…
He is happily divorced and enjoys life without worrying much about the consequences. While talking with him about taxes, he had admitted to me that he wasn’t very good at saving money. He told me, “as a single guy, I have no one I have to ask permission from when it comes to what I can or can’t buy. The nice thing with that is I can buy what ever I want, but the bad thing is that I’ve never been able to save my money because of it.” He then explained to me how getting a tax return helped him save at least something, and while I agreed that it can help in saving money, I also brought to his attention the additional money he was missing out on.
It is important to remember that when you “save” your money through a tax withholding, the government DOESN’T pay you interest like a traditional savings account would — and though many savings accounts may not have the most impressive interest rates, they still give you the ability to make money off of your money. Honestly, who doesn’t want to do that? The challenge you will likely face when deciding to change the way you do your taxes comes down to how you’ve already been living. Like with any other lifestyle change, changing the way you do your taxes comes with it’s share of risk that you may go back to your old ways. Unfortunately this risk holds much higher consequences than other lifestyle changes. Please don’t forget that YOU NEED TO PAY TAXES. If you truly want to take advantage of interest and investments though, then what you need to do when planning is to look at your answers to those questions I’ve listed above:
“What are my spending habits?”
If you’re the type of person that gets roped in by the fanciest gadget or the newest clothes, then having the money for tax time may be hard to pull off. It is best to start a budget and get in control of how much you spend before pursuing anything else.
“Do I have the self-discipline to save money on my own?”
If you have a savings account already, how much have you been able to put into it? If you are without one, then I recommend you open one to start saving as much as you can. For more in-depth ideas, see my article “How Can You Save Money”.
“Am I able to properly estimate what my tax obligations will be?”
The last and most difficult skill for many to perfect is the ability to calculate what your taxes will be. For those of you who are paid a salary rather than hourly, then you have a slight advantage. But make no mistake, a miscalculation in this area could leave you in bad shape if tax time came around and you were wrong on the amount that you owed. What I recommend is that you practice on paper first. For at least one year, calculate what you think your taxes will come out to. Then after that year, compare your estimates with your actual amount of what you owe.
***PLEASE NOTE: While I will always encourage people to invest their money, it is important to understand your tax obligations before doing so. If you are interested in investing rather than simply saving, remember that it is never wise to tie up all your money if you haven’t already done your research as to what your taxes will be (while also leaving room for adjustments/changes) . Only invest what you can afford and if you are unable to afford it, then a savings account that accumulates interest is still a very reliable option.
Lead Me Not Into Temptation…
For those who decide that they can’t say no to a tax refund, one obstacle you have to always be aware of is the temptation that comes with receiving money that you don’t normally have possession of. Where practicing good savings and spending habits can help you, receiving large sums of money all at once can harm you. The biggest mistake people make when getting their refund check is spending it foolishly. Don’t get me wrong, your refund is yours to do what you wish with it, but while some make strategic plans as to what their refund will go towards, such as that new car mentioned earlier, many others waste it all without realizing what they’re doing. Don’t believe me? Go into a casino and take a look at how many MORE people are there during tax time. The sad thing is how so many go in with the hopes that they’ll make even more money… yet many of them simply end up wasting their entire tax refund and leave with nothing but regret. Situations such as these are why I feel financial discipline is a MUST for anyone who has hopes of bettering their future. Get-rich-quick schemes hardly ever get you rich, and if you want to truly prosper financially, you have to teach yourself methods to saving and investing your money wisely.
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The Choice is Yours…
While my opinion may be evident, the choice of how you handle your taxes is solely yours to make. I believe everyone should have the advantage of knowing tricks to utilize their money more efficiently, and while putting your money into accounts that can help it grow over time can be beneficial for you in the long term, I also understand the extra effort and planning it involves. Which ever method that you choose, I hope that you never ignore your right to save money. If you take anything out of this article, I hope you learn that:
- Your tax refund was yours to begin with.
- It’s important to gain control of your spending habits.
- Putting your tax money into a savings account can earn you more.
- Stay away from temptations that threaten to take your money away from you.
As always, thank you for your time and I hope you learned something that you may not have known before. If you’re interested in more ways to save and invest your money, make sure to bookmark our site and join us on social media. Until next time…
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