MyMoneyMinute.com

Taxes have been filed, and a refund has arrived in the MyMoneyMinute household to the tune of about $360.  Last year, we were hit with about a $2,000 tax bill, so I was pleasantly surprised to end up on the receiving side this time around… but should I be?

Money Experts: “You Don’t Want A Big Refund!”

Many financial experts, including Dave Ramsey, frown upon a big tax refund.  Why?  Because the money you’re getting back was yours in the first place — it’s just been held hostage by the government for a year, interest free! The solution for them is to adjust your income tax withholding on your paycheck so that you receive more money each pay period.  Additionally, if you receive a larger lump-sum return, you’re more likely to spend it on a big-ticket item (electronics, vacation, etc.) rather than use it in a more financially responsible way, like paying off a car loan or credit cards, building up an emergency fund, or even for extra giving to your local church ministries.

For more on this argument, read articles by these two great bloggers:

Craig Ford from Bible Money Matters – 3 Reasons Why A Big Income Tax Refund Is A Horrible Thing.

Jason Price from One Money Design — Income Tax Refund: Is It Good Or Bad?

Me: “It’s Not So Cut & Dry”

In an ideal world, I agree with the guys above.  Unfortunately we don’t live in an ideal world.  If I lived in an ideal world, I’d never owe taxes or get a refund.  Then again, I also would never have charged money on a credit card, financed my life (cars, furniture, a home, and an education that cost even more than the home!).  Oh, and I’d have a stable job, an ideal salary, with predictable raises and bonuses too.

The 2 Major Reasons To Tolerate A Big Tax Refund

While aspiring for the ideal scenario above, there are reasons a big tax refund isn’t such a horrible thing after all.  Here are a few of them:

1.  You Suck With Money

Let’s face it.  If, instead of getting a big chunk of money in a refund each year, you got monthly slices of it by altering your withholding, it is almost guaranteed that money would be spent, and you wouldn’t even know where it went.  A few extra bucks each paycheck would be swallowed up by a restaurant here and a Starbucks trip there.  When you get one big check after tax season each year, you only have to make one financial choice each year, not 12 monthly choices to do the financially smart thing.  And hey, even if you make the wrong choice and blow the entire refund, at least you’ll get a really cool big-ticket item out of the deal, rather than spending it all throughout the year and not knowing where it went. If you’re gonna be stupid with your money, at least get a TV or an all-inclusive vacation to show for it.

The majority of us are financially undisciplined.  Until you get disciplined, a big refund can protect you from… you.  For a great analogy of this argument, check out an article written by Sam at Financial Samurai — Tax Refunds Are Good For Most People, Because Most People Can’t Save.

2.  The Danger of “Normal”: Risk Is Diminished

What my blogging friends didn’t discuss in this tax debate was this: we face problems adjusting our income withholdings because life is rarely “normal” or “ideal”.  Most people I know with a “stable” salary and tax structure are government employees.  In this economic climate, even those jobs aren’t safe.  People are underemployed and laid off in record numbers to the point where it is difficult to determine what your expected yearly withholdings should be.  Additionally, life happens too — you get married, buy a house, have children, buy a different house, someone gets injured on the job or gets pregnant — all these life changes affect your taxes, which means your withholdings may be off again.

For me, a limited return is ideal, but does not factor in the reality of risk.  From a risk standpoint, I’d much rather risk (1) giving the government my money interest-free for a year and get a big refund, rather than (2) miscalculate my withholdings and having to scramble to come up with an unexpected tax bill.

Conclusion

Currently, my life is just not stable enough to justify the risk of accidentally under-withholding to the point where I owe a big tax bill, and I suspect most people are in the same boat.  Perhaps down the road, life is a bit more stable and less in flux, I can spend the extra energy to get my withholdings down to a science.  But until then, I’ll err on the side of caution.

What Say You?

Don’t forget to read the articles by Craig, Jason, and Sam – then drop a comment below and let me know how you deal with your income withholding & tax refunds.

Follow me on Twitter

taxes dave ramsey, refund, risk, taxes, withholding

Are You Choosing To Participate In This Recession?

Let’s face it – the bad economic times are real.  We are in a deep recession.  Unemployment is high, construction is at a stand-still, and the stock market is in major correction.

But have we deepened our misery with an attitude of “doom & gloom”?  Are we in a self-fulfilling prophecy, where it has in fact become a more harmful economic environment because we are living in fear of how bad it can get?  While some of us may not have much say in a lay-off or a salary freeze, we do control our attitudes and whether we live our lives out of a spirit of fear, or from a spirit of empowerment and hope.

Town Hall For Hope

Dave Ramsey, a best-selling author and nationally-syndicated radio host, is a personal finance guru and America’s chief proponent of a debt-free lifestyle.  Dave will be hosting a Town Hall For Hope on April 23, 2009, at 8pm EST.  Over 5,000 churches and other organizations have signed up to host the event, which will be broadcast via a live private feed to each location, as well as through select radio markets and on the Fox Business Network, where Dave also hosts a daily television show.

In the 90 minute broadcast, Dave will spend 30 minutes speaking directly to our current economic climate, where true “hope” comes from (hint: it doesn’t come from Washington, DC!), and what real “change” must happen to put you & your family on the road to financial fitness.

The remaining 60 minutes will be split into two 30-minute Q&A sessions.  Questions will be taken not only from the live audience in Oklahoma City, but Dave is also going “Web 2.0″ by integrating and taking questions from these social networking sites:

• Facebook
• YouTube
• Twitter (@TownHallForHope #THFH)

Find A Host In Your Area

I’m hoping to find Dave’s message and this Town Hall For Hope both encouraging and inspiring.  You too should consider attending this event!  Click here or on the picture at the top of the page to locate a church or other organization that is hosting in your area.

Have you been reacting out of fear in this down economy?  Where do you place YOUR hope?  Tell me what would you ask Dave in this upcoming Town Hall For Hope.

Personal Finance, Uncategorized dave ramsey, Town Hall for Hope

Record Drop In Credit Card Usage

The Federal Reserve reported Tuesday that credit card usage & consumer borrowing (non-mortgage debt) has dropped at record levels.  Credit card spending fell at an annual rate of $7.8 billion, or 9.7%.  People are charging less and saving more.  That’s good news, right?

Lesson Learned?

In a vaccuum, decreased credit consumption is a victory in the battle against the bondage of debt.  Does that mean the Dave Ramsey’s and Suze Orman’s of the world have gotten through to the consumptive masses, and people are rejecting debt?  Hopefully, but studies show household debt decreases during times of recession and then, as creditors begin to make more credit lines available, consumers increase their credit card borrowing levels at the first sign that the economy is breaking out of a recession.

In fact, the reason the credit crunch is so huge during this recession, is because during the last recession (dot-com bust, 2001-2002), household debt actually grew because of low-interest rates and the break-out of credit card “teaser rates”.  So instead of a natural ebb & flow to credit availability, creditors have slashed credit card limits and increased minimum payments.  Basically, we’re now forced to double-correct our credit usage because our households kept on borrowing through our last recession!

Don’t Let History Repeat Itself

Use this double-correction recession to your advantage, and resist the urge to increase credit card spending when our economy begins to break out of this.  Practice delayed gratification by saving up to pay for things.  It is character-developing.  Use blog post and financial personalities to motivate yourself to get out of debt.  If you think you’re in too big a hole, consult some professionals about options prior to filing bankruptcy!  The point being, you need to eliminate past mistakes and work hard to put yourself into a position where financial mistakes won’t happen again.

Proverbs 22:7 (The Message) says “The poor are always ruled over by the rich, so don’t borrow and put yourself under their power.” Other versions say the borrower is servant, or slave to the lender.

With a deep recession and slashed credit limits, you have been forced to change your habits… for now.  What habits you default to when times are good again economically?

Are you subjected to the power of the rich?  Are you a servant?  Who owns you?

photo by Andres Rueda

Personal Finance consumer debt, credit card, dave ramsey, debt, suze orman

As I recently chronicled, we recently paid off my wife’s car.  The bank mailed the title to us the other day, and reminded us we have a few details left to take care of now that we’re official car owners.  I’m passing along their reminders with a few of my own suggestions & comments mixed in.  For other inspiration, see a similar article written by PT Money when he paid off his car in January.

What To Do After You Pay Off Your Car Loan

The Title

Check your title to make sure a bank representative signed & dated your release of lien. They should have upon mailing it to you, but hey, mistakes happen.  A signed & dated release of lien is satisfactory to transfer a clean title down the road, but if you want the lien completely removed from your title, go to your local county tax office, pay the applicable fees, and order a new title with the lien removed.

Store your title in a safe place. Title can be stolen and forged, so I recommend you don’t keep the title in your car.  Leave it in a protected place, such as your home safe, a locked file cabinet, or a safe deposit box at your local bank.

Insurance Policy

Change the “loss payee” on your insurance policy. When your vehicle’s financed, the lender requires you list them as “loss payee”, which means that if you total your car, any insurance payment for a total loss goes to cover the remaining loan balance first.  When you become the outright owner, you should change this to avoid any miscommunication and hassle with the bank and insurance adjuster should you total your car.  We use Esurance for our auto insurance, so this was easy for us.  I just logged onto my online account, and edited the car information.  In fact, I had forgotten to do this for our other car, so I changed them both on the spot.

While you’re at it, review the rest of your insurance policy. I considered raising my deductible, but decided against it for now.  But I did decide to add roadside assistance to our policy should our cars breakdown.  Both our vehicles are getting along in miles and we have an 80 mile round-trip commute each day.  I figured an extra $10 every six months wasn’t too bad for roadside assistance coverage.

Personal Finance

Snowball your car payment. If you just paid off a typical car loan, odds are your payment was about $400/month.  What will you do with all this extra money each month?  Don’t waste it on frivolous spending.  Be focused & intentional with that extra dough.  Add it to your debt snowball, or continue paying yourself a car payment each month, so you can buy your next car with cash, rather than a cash advance.

Take a minute to celebrate! That’s one less chain in the bondage of debt.  One more link broken on your way to freedom.  Congratulations are in order!  Pat yourself on the back, enjoy a celebratory dinner — whatever works to keep you motivated to continue on the path to financial awareness.

photo by rick

Personal Finance car insurance, car loan, Cars, dave ramsey, debt snowball, loan, snowball, title

We paid off our car!

It is definitely tough economic times out there for everyone, so I wanted to share a bit of positive news on the home front.

While the Lovely Miss H has permanent employment, I have been working in project-based, temporary employment.  The bad news is that it is temporary.  The good news is I can work nearly as many hours as I want.  So the past few months I’ve worked a lot of hours.  I finally figured out how much we had spent compared to our February budget, and the surplus was enough to finish paying off my wife’s car, a 2004 Saab 9-3.  I just logged off of an internet chat with a bank representative confirming we had paid in full, and that the title will be mailed within 10 business days!

Consumer debt is gone

Just want to send a small thank you to Dave Ramsey and his debt snowball methodology.  Yes, there may be mathematical flaws within a particular snowball of debt, but the psychology of “quick wins” in reducing debt cannot be denied, particularly when you’re married and you need two people to consent to a financial plan!

After 26 months, through full employment & layoffs, over-spending & saving, emergencies & good times, our consumer debt is now gone.  We haven’t been the best at paying down our bills, but we remained true to the overall goals & financial principles.

So now you’re rich, right?

No, far from it!  We’ve got so much educational debt, that I think our student loans took out student loans.  A married couple both going through college and grad school without a financial plan will do that to you!

Our next step is to build up an Emergency Fund to a reasonable level.  My car has 185,000 miles on it, hers is over 100,000.  We both commute about 75 miles round-trip each day.  We will need those replaced at some point, so I’d like to be ready with enough money to pay cash for our vehicles.  Now that our vehicles are paid off though, it makes me want to drive my lovely 2000 Nissan Maxima until it dies.  Instead of impressing people with a nice car, I’ll be impressing myself with how long this car can stay around.  This shift in thinking is much easier on the pocketbook.

The Journey Continues

There are always hiccups, bumps, and bruises along the way, but we will enjoy this minor victory, and use it as motivation to keep focused on our long-term goals.

What about you?  Have you had any financial victories or setbacks lately?  Tell me where you are in your journey.

Follow Me on Twitter!!

photo by dreamweaver1619

Personal Finance baby emergency fund, Budget, Cars, consumer debt, dave ramsey, debt, emergency fund, snowball