Give Yourself a Raise

In my last post I wrote about how a lot of companies are freezing salaries this year. In this post, I'd like to suggest that you might be able to give yourself a raise.

Every year at tax time I have conversations with people who tell me what they are going to do with their tax refund. They are going to go on vacation or pay off debt or buy a TV. After I cringe while trying to appear not to, I think, "Do they think that's free money that appeared out of nowhere?"; "Don't they know that's their money they loaned to the government for free for a year?"; "What could they have done or avoided if they had kept that money in their paycheck?"; "Did they let their credit card balance increase at 18% while loaning their pay out at 0%?"

Tax refunds seem to be a replacement for regular saving or a safegaurd against a large tax bill. Unfortunately, its a poor savings plan. Most people laugh at passbook savings rates, but don't mind loaning their money to the IRS for free. Additionally, most people aren't in danger of large tax bills at the end of the year if they fill out their W-4 correctly. Some exceptions would be dual income families, families with large amounts of investment income, and families that have 1099 MISC income.

So, if you got a large refund this year (I'd say $300 or more), check the exemptions on your W-4. Without any of the exceptions noted above, you should be able to complete it as prescribed and get a raise in your paycheck. You can then use it to meet your monthly bills, pay off debt, or save for an emergency. Even If you're worried about a large tax bill, at least keep the money and put it in an emergency fund that you could use to pay your taxes. Better in your pocket than the IRS.

Enjoy your raise.