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Refunds: They're wrong!
It's hard to get that through to my clients. But refunds are bad.
Sure, it's exciting to get a check from the Internal Revenue Service. Well, actually, it's from the Treasury, but you know what I mean. That misses the point, however.
It's not like you're gaining anything. That money was always yours. The feds are just giving it back. And that's the point.
When you get a refund, what that really means is that you've given the federal government an interest-free loan. You're just getting your money back.
In fiscal 2008, more than 100 million Americans received tax-refund checks, with an average refund of $2,429, up slightly from the year before. No matter how you do the math, that's a whole lot of interest-free dollars.
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An offer you can't refuse?
People just don't learn. They want that check from the government. But I can give you the same deal.I hereby offer to allow anybody reading this to send me money. I'll take cash, checks, money orders, even food stamps. Send me as much as you want. And I promise -- on my word as MSN Money's tax expert -- that I'll send it back to you on April 15, without interest.
It sounds silly when you put it that way, doesn't it? But it's no different than getting a tax refund from the IRS.
Some people argue that refunds are a great way to save money. If they never see the dollars in their checks, it's easier to put aside money for, say, that big-screen plasma TV they've been drooling over.
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Open your eyes, financial fool! That's what payroll savings deductions are designed to do. Buy savings bonds or, better yet, increase your retirement-plan contributions. Or just put an extra $50 per paycheck into a money-market fund.
Here's what I'll do. I'll up the ante on my original deal. Not only will I give you your money back, but I'll add a whopping 2% to your original contribution. That's twice what the money-market funds were paying not too long ago. You can't beat that kind of deal.
Continued: Aim to withhold just enough
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