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.