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Split Your Refund and SaveUP!
By MP Dunleavey on Tuesday February 02, 2010
Note: This post applies to Canadians, in part.
Millions of Americans use their tax refunds as a form of forced savings. You know who you are.
Money experts quibble with this strategy, arguing that when the government withholds extra money from your paycheck, you're giving Uncle Sam a year-long, interest-free loan.
That's true. But our beef with the refund-as-savings method is that many people get that nice chunk o' change—the average is about $2,800, according to the IRS—and don't save it.
It's vacation money, new TV money, iPod upgrade money, "Honey, let's get rid of this old couch" money.
If your tax refund enables you to make purchases with cash instead of credit, that's a smart choice. But we'd rather see you save at least a portion of your refund toward your SaveUP! goal.
If you haven't joined SaveUP!, seize this inspiring moment to list your pledge with more than 100 other DW readers—and take advantage of the split refund option this year.
Use IRS Form 8888 to have your tax refund directly deposited into as many as three different accounts. For example, have the IRS deposit $500 in your checking account, $1,500 in your IRA and $200 in the vacation/TV/iPod fund.
Spend a little—save a lot. That's how the money grows.
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written by Amanda Steinberg (DailyWorth founder) , February 02, 2010
written by Amanda Steinberg (DailyWorth founder) , February 02, 2010
We wanted to express how much we adore our Canadian and International readers--we know you're often frustrated that our content isn't "localized." It's part of our master plan. Just not there yet.
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written by dreamcatcher , February 02, 2010
written by dreamcatcher , February 02, 2010
Yay! If I set aside half of my tax refund, I will be way passed my goal of $1630.00 by December 31st, 2010! So I guess that means I have to save that on top of what I am putting away from my taxes. So I have to edit my savings goal to $3500.00+$1360.00=$4860.00 by December 31st, 2010. Whew! That will be the most I have ever saved in all my life. I am so excited though. I put away, $60.00 dollars away from my last pay check into a second chance checking account. So I am on my way to saving for the year. Plus I put some $2 bills away for a rainy day also. I got 5 of them this last payday, so I put them away where I wouldn't bother them. And I put whatever change is in my pocket at the end of the day into a jar, and when that gets full I will take that to the bank and get it changed into dollars and send it to my account which is in another city, I pay myself as if I am paying a bill. I am getting the hang of the saving idea. I think I am becoming a savings addict. Its fun to see how many ways you can save.
I still have to create a budget for the rest of the money otherwise I will spend it foolishly and not get anything out of it. I am not good at the budget process. I write my budget down, and it doesn't match what I make per paycheck. I start out following the budget, and at the end of the day I end up with lint in my pocket. My bills are paid, and I cut way down on my extras. Its those last minute, have to have items that I think cause my pockets to be drained. Ok I have to allow 2 days to think about a purchase like the ones that come my way.
I am so thankfulfor these articles, and how they cause me to look at my budget, and cause me to see where I am lacking, where I can improve, and where I need to cut back etc.,
I still have to create a budget for the rest of the money otherwise I will spend it foolishly and not get anything out of it. I am not good at the budget process. I write my budget down, and it doesn't match what I make per paycheck. I start out following the budget, and at the end of the day I end up with lint in my pocket. My bills are paid, and I cut way down on my extras. Its those last minute, have to have items that I think cause my pockets to be drained. Ok I have to allow 2 days to think about a purchase like the ones that come my way.
I am so thankfulfor these articles, and how they cause me to look at my budget, and cause me to see where I am lacking, where I can improve, and where I need to cut back etc.,
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written by Laura , February 02, 2010
written by Laura , February 02, 2010
Even though I am an international reader, I like the posts like this one. I forward these to my sister (who still has not subscribed to DailyWorth!) so that she can get her finances in order. I wish we had a tax refund here in France. We have the choice of paying taxes monthly, based on what was earned the past year, or paying quarterly. No refund at tax time. Thank you for expressing concern about international readers!
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written by Marlina Rodriguez , February 03, 2010
written by Marlina Rodriguez , February 03, 2010
Hi Amanda,
I have to say it was wonderful meeting you this weekend at the Ladies Who Launch "Launch Into Your Best Life Yet" workshop. This was my first workshop and I learned so much in the one day that I can only imagine where I will be in the near future. Everything you said made so much sense and I actually understood it. Listening to your life experiences was ever better, thank you for sharing with all of us. I am now an official "Daily Worth" member :) Now I have to get everything in order. Hope to see you again at the Ladies Who Lauch. Thank You. Marlina
I have to say it was wonderful meeting you this weekend at the Ladies Who Launch "Launch Into Your Best Life Yet" workshop. This was my first workshop and I learned so much in the one day that I can only imagine where I will be in the near future. Everything you said made so much sense and I actually understood it. Listening to your life experiences was ever better, thank you for sharing with all of us. I am now an official "Daily Worth" member :) Now I have to get everything in order. Hope to see you again at the Ladies Who Lauch. Thank You. Marlina
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written by Carlee Swihart , February 03, 2010
written by Carlee Swihart , February 03, 2010
Is it better to save half of that money or pay off a bill?
Just looking for other peoples opinions. I have no credit card debt (which would obviously be the best choice to pay), however I have federal student loans (4.5%), a car payment (8%), and a mortgage(5.45%).
Thoughts?
Just looking for other peoples opinions. I have no credit card debt (which would obviously be the best choice to pay), however I have federal student loans (4.5%), a car payment (8%), and a mortgage(5.45%).
Thoughts?
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written by Jaime , February 03, 2010
written by Jaime , February 03, 2010
@Carlee ... If I were you, I would apply it to a car loan (as an additional payment, not in lieu of your regular one) before student loans or your mortgage. You didn't mention if your emergency fund(s) was fully funded. If it's not, then I would direct at least part of your refund to your emergency fund. Next, I might apply an extra mortgage payment - if you're planning to pay it off or trying to build eqity. If you're not trying to do either of those things then I would not waste the money. I typically pay extra on my student loans last just because they are flexible during layoffs or other life changes, whereas car loans and home loans are not.
To answer your first question though, it depends. If you have no emergency fund, then I would say to save that refund. It's important to pay down bills, but it's tougher to get ahead of the bills when any little bump in the road piles on the debt. If you are close to paying something off or need that emotional satisfaction to keep going with debt payoff, then I would advocate paying off a bill and using the savings next month to get that emergency fund started or increased.
To answer your first question though, it depends. If you have no emergency fund, then I would say to save that refund. It's important to pay down bills, but it's tougher to get ahead of the bills when any little bump in the road piles on the debt. If you are close to paying something off or need that emotional satisfaction to keep going with debt payoff, then I would advocate paying off a bill and using the savings next month to get that emergency fund started or increased.
