Don’t Let Uncle Sam Babysit Your Savings

Dont Let Uncle Sam Babysit Your Savings

Please stop acting like you’ve won the lottery when you get your tax refund – that was your money to begin with!  I know some people purposely have their employer withhold too much money on their paychecks so they get a big refund.  Why is this a bad idea?

First, you are earning 0% interest on this money.  If you have debt of any kind – credit cards, student loans, or a mortgage – you’re better off paying down those interest charging accounts, rather than letting Uncle Sam hang onto it interest-free.

Second, some of you are living paycheck-to-paycheck 11 months out of the year, then acting like you’re rich the month your refund hits your account.  I’d much rather see you adjust your withholdings so that your refund is very small, but you have more financial breathing room the rest of the year.

Third, if you have a financial emergency, you cannot access the money you’ve overpaid the government until Tax Time.  Big mistake!  You may end up having to borrow money to fix your car or pay that medical bill.  Instead of overpaying your taxes, have your employer split deposit your check and put that money into a savings account.

Rather than getting a tax refund of several thousand dollars every year, adjust your withholdings – with the assistance of your CPA or tax professional – and put that money to better use, to help you make progress on your journey to financial health.

**Always consult with your tax professional before adjusting your withholdings.  Everyone’s tax situation is unique.  Christine Luken and 7 Pillars LLC is not responsible for any tax or financial liability arising from the advice on this website.**

Comments 15

  1. This is a great post and something I never really thought about it. I will talk with my husband and may adjust how much is taken out of my account.

  2. My husband and I realized this a few years and decided to practice this idea. It has been a great change for us with our taxes, and one we do mention to others who brag about the crazy large tax refund they are getting.

  3. I agree! People would tell me I was crazy for claiming more than 1 withholding, but I also have 401k coming out of my paycheck, so I’d like to hold onto as much of my money as I can.

  4. This is such great advice. Savings is something my husband and I have been diligent about for a long time and something I want to teach my kids. We usually have to pay at the end of the year so we are a little on the other end of the spectrum.

  5. Pingback: Spring Clean Your Money | Christine Luken

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