The First Thing You Should Do With Your Tax Refund

by David Bakke

tax refundThis post may be a bit later than most, but I just finished filing all my taxes for the year.  I am getting quite a nice refund from both my federal and state returns.  Great for me, right?

Well, of course it is.  The first thing I am trying to decide now is what to do with the money.  Invest it?  Take a long vacation?  Stick it under my mattress?

And then I got to thinking.  And this is probably the last “big” thing that I need to do to get my financial house in order.  What I need to do is to make sure that I never get a big refund on my taxes again.

You see, just about ever since I have worked, I have always set it up to where I had the most taken out of my paychecks throughout the year, in order to get this big refund check come tax time.  For the longest time, I just didn’t know any better, but for the last several years, I knew that this was not being financially prudent.

Why?  Because you’re giving the government free access to your money for most of the year.  Yes, YOUR money.  It’s like an interest free loan for them.  I don’t know about you, but I think our government takes more than enough of our money as it is, so I see no reason why I should lend them any extra.  With no interest as well.

To give you a little background, there was a reason why I set things up this way.  I thought that if I could live on as little money throughout the year, that it would help me to be more prudent with my money.  It was almost like I was hiding money from myself throughout the year to ensure I didn’t waste it.

This approach may have been effective in the first few years of dong it, but I have been financially sound now for many years, and I think that I can trust myself with the extra money.  Actually, rather than even trusting myself, I think I have already devised a fool-proof system.

First, I will adjust my withholdings to ensure I am getting the least taken out of every paycheck.

Second, I’ll monitor this the first few weeks to get an idea of how much money were talking about.

Third, I will set up a separate direct deposit from my paycheck to my high yield checking account for the amount of this new windfall.

Fourth, I will start accruing interest on this money throughout the year, rather than it gaining nothing for me.

Exactly what I need to do to adjust my withholdings or how I need to do it-I have not yet figured this out.  Although I am sure it is quite a simple process.  I just need to make sure that I am getting the most out of my paychecks, without taking out so much that I’ll owe at the end of the year.

Of course, if any of you have been through this recently, feel free to comment on the process for my readers.

So there you have it.  I’ll worry about my vacation destination or which mattress to put this money under a little later. Right now I need to work on never getting another one of these big refund checks again.

{ 2 comments }

1 Cajun Chef Ryan March 9, 2010 at 1:41 pm

I agree, in fact, if you owe taxes on April 15th, it is like getting a loan for free too. You get to keep “their” money longer and earn interest on it, instead of the other way around when you get your “refund”
.-= Cajun Chef Ryan´s last blog ..Whole Wheat Bread =-.

2 David Bakke March 10, 2010 at 4:28 am

Ryan,

Great point. Nice to get at least a little something back from them instead of the other way around.

Thanks for commenting

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