It’s tax time again and I hope you’re getting a refund check from the IRS this year instead of paying into the IRS this year. If you do owe money this year, make sure that you change your withholdings with your employer right away. Don’t hesitate, it only takes a few minutes and it will save you a lot of trouble next year.
Some people say it is best to get your tax refund as close to $0 as you can. I personally would rather get around $1,000 back each year from my income taxes. For me, this is more of an insurance policy that I don’t get surprised each year by owing money that I didn’t expect. However, if you get a lot more than that back every year, you probably have to much withheld from your pay checks. I agree that it is nice to get some money back each year, but if you’re getting too much back, that is money that you could have used to eliminate debt, or invested in your retirement brining you one step closer to Achieving Financial Freedom.
You’ve filled out your tax papers, and you finally receive that refund check you’ve been waiting for. What do you plan on doing with money? If you still need to eliminate debt, you should use your refund to pay off as much of your debt as possible. I’m sure you would rather spend it on that new 55” flat screen TV that you have been wanting. Your first priority however needs to be to eliminate your debt. Let’s say that you receive $1,000 back from taxes this year, and you still owe 4,000 in credit card debt. By using your tax refund to pay down your debt, you not only reduce your debt by 25%, but you also save on the high interest you are paying. By using the debt snowball method, you can actually get your debt paid off much faster than you realize.