Tax Refunds Are Good For Most People Because Most People Can’t Save

Bet You Can't Eat Just OneThe average tax refund is $2,400 a year, and 74% of Americans get a tax refund. I’ll consider you average for argument’s sake.  At today’s typical savings rate of 1%, you’re missing out on a whopping $12 bucks in interest income! Why $12, and not $24? It’s because you have to calculate the average balance of the year if you saved every $200/month payment diligently starting January 1st i.e. January $200, February $400, March $600 etc.

I’m definitely not a proponent of giving the government more money than they deserve, but missing out on $12 bucks in interest is something I can live with and so should you.

You have to ask yourself whether you have the discipline of saving that extra $200 a month, or using it to pay down debt. Most people are not disciplined enough to pay down debt and avoid buying junk. This is why we have such massive debt problems in the first place!  The government is essentially helping you “go broke to win big” by protecting 75% of American tax payers from blowing $2,400 a year without even knowing it.

A SIMPLE GUIDELINE & SOME COOKIES

A good way to decide is to take emotion out of the equation and just use a simple ratio. If the expected increase in monthly cash flow is less than 10% of your monthly net cash flow, forget about it!  The extra money isn’t going to make a difference in your lifestyle, but that extra nut at the end of the year will.  Turn it around, most financial advisers recommend saving at least 10% of your yearly gross income towards retirement.  For a small fee, the government is helping you get to that goal.

If you really want to know whether you’ll be able to save your extra monthly income, buy a bag of your favorite cookies.  Place them on your bedside table every night for 1 week, and see if you can avoid eating them.  Now imagine a bag of cookies appearing every 2 weeks or every month for an entire year.  Let me know how it goes!

All year long you condition yourself to live on less.  Come year-end, you’ll be happy you did!

Recommendation: I’ve been doing my own taxes with H&R Block At Home for the past ten years. H&R Block is so easy to use, anybody can do their own taxes with their step by step guide with audit protection plan. The program has consistently found thousands of extra dollars in tax savings I did not realize I could have. Why bother paying an account hundreds of dollars when you can learn more about your financials, find extra tax savings, and do it all from the comfort of your own home? Get the H&R Block At Home Online Free Edition!

Keiju,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”

 

 

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. says

    Well I guess tax refund will be a handful as far as the majority of people concern, having too many sweets is not going to help our health, but we couldn’t survive without it either. Some grate thoughts and tips have shared by the users…. Most of them do make sense. Very useful information and thanks for sharing.

  2. says

    Since I was teen, I’ve always been good about saving, but I agree it certainly isn’t the norm.

    As far as the biggest tax refund, it was $11K due to an overpayment in estimated taxes. Yes, it was nice to have the money back, but I used it to pay down part of a student loan and paid off my car loan. Pretty boring, eh?

  3. Taxes says

    I’m definitely not a proponent of giving the government more money than they deserve, but missing out on $12 bucks in interest is something I can live with and so should you.

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