Why Are You Providing A $3,000 No Interest Loan Every Year?
What if the company you work for came to you and said, “We have a new exciting program just for you! We want to take $260 a month out of your paycheck for an entire year. After the year ends, we are going to give you all of your money back in one lump sum totaling $3,120. We will not give you any interest, we are just going to give you back the money you gave us. We will also wait at least 4 months after the year ends… just to hold your money a little longer.”
In addition to this not so savvy deal, the company offering the deal is millions of dollars in debt! Would you trust them? Doe this even sound like a remotely good idea? Most of you would say “NO” yet 80% of us say “YES” to this every year in the form of a “tax refund” to a government that is trillions of dollars in debt.
Thankfully, the company you work for is not causing you to play this game, but 8 out of 10 of us do this with our paychecks every month. Most of us just assume that we have to play along, but we don’t.
Here is how the program works in real life.
When you are paid, your taxes are taken out of your check. Most of us think it is a fixed amount and we can’t do anything to change it. Because most of us don’t look at our pay stubs every month, we don’t realize how much money we are losing. Your income tax is based on how much money you make per pay cycle. You do have to pay income tax but you don’t have pay more than the required amount.
A “tax refund” is money you get back because you paid more money than what you needed to pay in the first place!
In other words a “tax fund” is like giving the government money beyond what they require for free, then waiting for them to give it back to you with no interest. Try to see if your local bank will make that deal!
As an added “bonus”if you are 1 minute late paying the IRS you will be charge interest! We are smarter than this!
An Easy Way to Fix it for Next Year.
- Once you you get your money back from last year divide that number by 12. Example: The average person who gets a “tax refund” gets about $3,120. If you divide that number by 12 you get $260. Which means you are paying $260 more per month than what is required of you.
- Depending on if you are getting money back form the state you live in or the federal government, you can change your tax withholding allowance for federal or state income taxes. The more allowances you have, the less money you have taken out of your paycheck.
- Once you adjust your allowance, see how much more you are getting in your paycheck! If you are not sure were to make your adjustments, contact your HR department. If you adjust your allowance and you are now getting $200 a month more, that means you would still get $720 at tax time but you now have $200 extra per month to use towards a wise personal financial plan.
- Please note: if you are the rare 2 out 10 people who have to pay each year at tax time, then you might want to lower your allowances and pay more per month so you pay less all at one time.
The Push Back
The push back I get all the time is “My “tax refund” is what I use to pay for vacation and other things, if I don’t have that money I am not sure sure what I would do.” If you take control of your money and develop a plan (a budget) then you are in the drivers seat with what to do with YOUR MONEY, not the IRS. Having control of your money each month allows you to buy things now, or invest the money and earn interest! You make zero interest if you leave control with the IRS.
If you still feel like you cannot control the money you spend, then have your bank automatically take the extra money you are getting out of your checking account and put it in a interest bearing saving account or money market. This way you get your money back monthly, you would have access to your money, and you can make money off of YOUR MONEY!
Are you ready to stop playing the no interest loan game?