Today is the last day of “Pre-Game”. Remember: In order to be successful in personal finance, you need to get all of the items that we’re talking about this week into place before you start your debt plan.

Today’s topic is something that most people don’t really consider. Some people use 0% interest loans to transfer around their credit card balances to avoid paying interest on that money. I’m cool with that, as long as they’re actively working toward paying them off while they’re doing it. However, there is one 0% interest loan that I’m NOT cool with, and that’s the one that, according to CNN Money, 8 in 10 Americans give to the Federal Government each year. What loan am I talking about? Your Federal Tax Refund.

So, going forward, instead of using the term “Refund” I’m going to be using the term “Loan”, because as noted above, that’s what it is. A loan to the Feds. The sooner you look at it that way, the better off you will be. Got it? Good!

So how much does the average U.S. Citizen loan to the Federal Government each year? Again, according to CNN Money and IRS Data, the amount is roughly $2,800 per year, which breaks down to $233.33 per month. So if you tell me, like a lot of the folks that I talk to every day, that you can’t find extra money to put toward your debt or that you can’t meet your monthly bill obligations, you probably haven’t taken this into account.

So aside from having an extra $233.33 per month in your pocket, why else is it a good idea to make sure that you don’t give the Feds a loan each year? Well, think of it this way: If an acquaintance of yours, who you don’t even like and is notorious for spending way more than he earns on things he doesn’t need (Like a drunken sailor, perhaps), asks you to loan him $2,800 and tells you that he won’t pay you any interest on it, would you give it to him? Of course not. So why would you give it to the Feds? Just picture this guy asking you for money, and you’ll be fine.You may be saying “I don’t trust myself to spend that extra money properly if it’s in my check”. Well… GROW UP.

Remember in yesterday’s blog when we talked about things that grown-ups do? This also falls into that category. Grown-ups make plans (Budgets), and follow through with them consistently. Be a grown-up.

Now that you understand how this works, you may ask “How does someone go about making sure that they’re not giving Uncle Sam that 0% interest loan?” Well, thankfully, it’s pretty simple. Here are some tips:

1. Stop Doing Your Own Taxes – This is definitely the easiest and most important part and, if you do this, you won’t have to do anything else. Just tell the tax pro (Accountant) that you don’t want to get a refund and he’ll tell you how. It’ll involve asking for last years returns, and asking about this years expenses, as well as having you give him/her a few of your most recent pay stubs. From there, they can tell you how to adjust your employers w-4 form so that you get $0 back and won’t be responsible to pay anything, either.
   • Do you have a variable income (Like me)? Hiring a tax pro is really your only option, then. It gets far too complex, otherwise. Pay the $200 and offload that burden to someone else!
2. Claim More Exemptions On Your W-4 – The W-4 form is the payroll document that your employer uses to properly withhold and report your taxes to our “friends” at the IRS. If your income is steady (Normal salary/hourly based position), and you don’t have a ton of expenses, you can probably get pretty close to paying nothing, or maybe owing a couple hundred bucks by changing your W-4 form at work. Most people claim a “0” on their form when they should be claiming a 2, 3, or 4. Don’t do it on your own, though. Call your organization’s payroll staff, and ask them to help walk you through it. It should only take about 15 minutes. I do want to emphasize that I still recommend that you use a tax professional, but if you don’t want to spend the money, and your tax situation is simple, this is an option.

Ok, so your homework this weekend is to re-read this week’s blogs and to put a plan into action, because that’s what grown-ups do, right? I’ll see you on Monday to start the dive into truly being financially free by eliminating your debt!

 

How big is YOUR loan every year? Comment below and tell us what you’re going to do to change it.

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