No matter how much you know about money or how well you manage yours, chances are there are things you do that you know are wrong, but can’t give up. For me, it’s overpaying taxes.
Here’s my confession: even though I’m married and file my taxes as a business due to various income sources, my tax withholdings are still set to the max.
I know it’s stupid. I know that my tax withholdings should be set so that I’m paying the right amount of taxes out of each check, owe nothing, and get no refund. I know that the smart thing to do is invest or save that extra money every week so I’m earning interest. I just can’t kick my tax refund habit, though.
The truth is, I don’t trust myself. Saving that money throughout the year takes a lot more discipline than letting the IRS hold on to it. Sure, my checks would be a little bigger every other week if my with holdings were set correctly, but an extra $200 a month can be frittered away so easily.
Earning interest requires putting every penny in the bank. That can be really difficult for someone like me who battles the evils of lifestyle inflation. I work hard to combat it, and for the most part I avoid major inflation, but when you’re living on a very tight income, it’s incredibly difficult not to add expenses as income increases. When that money comes in a lump sum, though, it’s a lot easier for me to commit it to savings or something purposeful.
We received our tax refund today, and it’s already been moved to savings to finish up our Europe fund and give us a pretty big head start on our moving fund.
I wish I had the self discipline to earn interest on that income all year, but in the end it would only add about $50 to my total. I know, $50 is better than nothing, but I can’t say I regret it. It’s unlikely I would save an additional $200 a month if my withholdings were set correctly. It would likely be spent on other things. Besides, nothing feels better than moving a big lump sum of money into savings and seeing my percentage increase overnight. Tax refunds are my personal finance guilty pleasure.
What about you? Do you like to get a refund every year, or do you set your withholdings correctly?
Rationally speaking, a tax refund is not a good idea but I am in the same boat as you are. I rather err on the cautious side and get money back from the government than get hit with even more taxes. I look at my tax refund as savings I don’t even notice. At today’s interest rate the opportunity cost of not having the money in my bank account during the year us not that high, either.
Eh, don’t beat yourself up over it. You’ve said you worry about being responsible with it month to month, so to protect yourself from yourself, you’re doing it this way. That’s fine!
I have a few little things to do before our taxes are finished. We’ll either break even or owe a tiny (less than $100) bit. Yeah, it’s fun to get a little tax windfall, but oh well.
I kind of wonder if it would be better for us to have a smaller paycheck and then a refund, especially since I’ve only been so-so about being a stickler to the budget lately.
The one thing that makes me wary of totally maxing out my exemptions is what happened in bankrupt California. How people supposedly were going to receive IOUs from the state instead of a refund check.
I don’t know if that actually happened or what the deal was, but that would SUCK. Especially if you were counting on the money to fund a certain project.
.-= Kacie´s last blog ..In anticipation of Spring cleaning … =-.
Kacie – That kind of happened to us last year. We didn’t get an IOU, but it was seriously April or something before we got our state refund back and we had filed in January. It stunk, but luckily we weren’t expecting the money for anything specific. This year we got our state refund right away, so it worked out okay. I agree, though. It would suck to be counting on the government and have them put you on hold.
Lots of people do that. I fear for the day when the government says we don’t have the money to give you your refund!
maybe get a Smarty Pig account and take out a set amount each week/month instead of allowing the government to use your money interest free?
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THANK YOU for writing this! I’ve often thought how hypocritical I was for calling myself “frugal” and still claiming the single status on my deductions when I’m married with child. Thanks to you, no more guilt! :D
I love getting a refund too. Saving is a weakness here so when the money comes it is really nice. This year almost all of it is going into savings for this summer when I am out of work. Due to lack of money by the state of Illinois, the program I teach at the community college will not be able to exist since funding has not come through. But, I am glad our tax money is in our hands now and will be there for us this summer.
.-= Cathy´s last blog ..Choices =-.
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