I was talking to a friend the other day, and we were having a conversation about someone that we know who is expecting a very large income tax return check- over $10,000. The bulk of the person’s federal income tax refund came from Earned Income Tax Credit, which gives the filer an additional tax credit per dependant claimed. This person that I refer to perfectly fits the stereotype of a low-income, financially illiterate, wage earner. Why? She basically has grandiose plans for the huge income-tax return that she will receive. Like, running out and purchasing name brand clothing and shoes for her family, several HDTVs, new furniture, giving money to other people, having house parties, and the list goes on.
Well, there is nothing wrong with taking some of the money and actually doing something to enjoy yourself. At the same time, some people just go buck wild with this. They justify their excess spending by telling themselves things, such as “You only live once (YOLO)” or “Why have all this money if you aren’t going to spend it?” Some of them can’t sleep, fervently anticipating the day when that money arrives. They don’t think about planning for the future or putting something away for a life crisis. Then, when the shit really hits the fan, and they need cash immediately, they realize that they have screwed themselves with a metal spiked dildo and no Vaseline.
I don’t mean to sound harsh, because I know what it is to be poor and disadvantaged. I think that the reason why the U.S. government established the Earned Income Tax Credit is for the main purpose of stimulating the economy. The politicians and government economists know that most people of the lower socioeconomic class are lacking in financial literacy. When most (not all) poor people get a windfall, they usually do something foolish with the money, rather than looking out for themselves. I mean if we are to be honest here, most people are poor for a reason. The politicians know that the first order of business for these folks is to go to a casino and gamble away their income tax check or to go on major shopping spree, thus boosting the economy.
People need to wake up! This lump sum is really a blessing, so it would be better if people learned to put the money to better use, by doing things with it that will truly benefit them. Do things that make more sense, such as paying down debts, saving the money for an emergency fund, investing, and buying things that you need versus things that what you want.
If you have any outstanding debts, make sure that you pay as much as you can on that debt. Even if you can only pay down a small debt, it a still a good step in the right direction. You are making progress in the way of reducing or eliminating late fees, accumulating interest, and getting rid of the negative mark on your credit report. So, even though you have to relinquish some money in the short term, you are putting more money back into your pocket in the long term.
I have a friend that was complaining that after she filed her 2012 federal income tax returns, the IRS sent her a letter in the mail regarding her income tax return. She was due a federal income tax refund of around $5,000 but the IRS is going to use the money to offset her outstanding student loan debt. My friend was very disappointed, because she had big plans for the money. I told her that they really did her a favor. Knowing her as I do, she probably would have squandered some of that money instead of paying off the debt. The bright side behind her situation is that she can have a little peace of mind in knowing that her future income tax returns won’t be used to offset her student loan debt. Also, she doesn’t have to worry about her wages being garnished, since the bulk her student loan debt is now paid.
I don't generally get back large income tax refunds, because I claim myself on my W-4 form. Thus, less federal income taxes are withheld from my pay throughout the year. However, if I were in the position of receiving a large income tax return, I would just keep quiet about it. Keep your personal business to yourself. When you tell everyone how much you are getting back on your income tax returns, you’re just opening up a Pandora’s box of sorts. People will start coming out of the woodwork whom somehow feel that they are entitled to some of that money. Never miss a golden opportunity to shut the hell up in this respect.
The first thing that I would do, is set some money aside in an emergency fund. The next thing that I would do is put some of the money into an IRA (Individual Retirement Account) and invest it in a low-risk, low-volatility investment vehicle. Then, I would put some of the money towards paying off a debt. Lastly, I would enjoy some of the money by taking a trip to a get away somewhere or spending some on my kids (if I had any). These are arbitrary numbers but I would divide up the refund money about 25% to each area of spending just mentioned. But hey, this is only what I would do. Whatever you choose to do is really your business. To each his own.
© Copyright 2013 Susan Broadbelt
www.thewhimsicalmusingsofsusan.com
Well, there is nothing wrong with taking some of the money and actually doing something to enjoy yourself. At the same time, some people just go buck wild with this. They justify their excess spending by telling themselves things, such as “You only live once (YOLO)” or “Why have all this money if you aren’t going to spend it?” Some of them can’t sleep, fervently anticipating the day when that money arrives. They don’t think about planning for the future or putting something away for a life crisis. Then, when the shit really hits the fan, and they need cash immediately, they realize that they have screwed themselves with a metal spiked dildo and no Vaseline.
I don’t mean to sound harsh, because I know what it is to be poor and disadvantaged. I think that the reason why the U.S. government established the Earned Income Tax Credit is for the main purpose of stimulating the economy. The politicians and government economists know that most people of the lower socioeconomic class are lacking in financial literacy. When most (not all) poor people get a windfall, they usually do something foolish with the money, rather than looking out for themselves. I mean if we are to be honest here, most people are poor for a reason. The politicians know that the first order of business for these folks is to go to a casino and gamble away their income tax check or to go on major shopping spree, thus boosting the economy.
People need to wake up! This lump sum is really a blessing, so it would be better if people learned to put the money to better use, by doing things with it that will truly benefit them. Do things that make more sense, such as paying down debts, saving the money for an emergency fund, investing, and buying things that you need versus things that what you want.
If you have any outstanding debts, make sure that you pay as much as you can on that debt. Even if you can only pay down a small debt, it a still a good step in the right direction. You are making progress in the way of reducing or eliminating late fees, accumulating interest, and getting rid of the negative mark on your credit report. So, even though you have to relinquish some money in the short term, you are putting more money back into your pocket in the long term.
I have a friend that was complaining that after she filed her 2012 federal income tax returns, the IRS sent her a letter in the mail regarding her income tax return. She was due a federal income tax refund of around $5,000 but the IRS is going to use the money to offset her outstanding student loan debt. My friend was very disappointed, because she had big plans for the money. I told her that they really did her a favor. Knowing her as I do, she probably would have squandered some of that money instead of paying off the debt. The bright side behind her situation is that she can have a little peace of mind in knowing that her future income tax returns won’t be used to offset her student loan debt. Also, she doesn’t have to worry about her wages being garnished, since the bulk her student loan debt is now paid.
I don't generally get back large income tax refunds, because I claim myself on my W-4 form. Thus, less federal income taxes are withheld from my pay throughout the year. However, if I were in the position of receiving a large income tax return, I would just keep quiet about it. Keep your personal business to yourself. When you tell everyone how much you are getting back on your income tax returns, you’re just opening up a Pandora’s box of sorts. People will start coming out of the woodwork whom somehow feel that they are entitled to some of that money. Never miss a golden opportunity to shut the hell up in this respect.
The first thing that I would do, is set some money aside in an emergency fund. The next thing that I would do is put some of the money into an IRA (Individual Retirement Account) and invest it in a low-risk, low-volatility investment vehicle. Then, I would put some of the money towards paying off a debt. Lastly, I would enjoy some of the money by taking a trip to a get away somewhere or spending some on my kids (if I had any). These are arbitrary numbers but I would divide up the refund money about 25% to each area of spending just mentioned. But hey, this is only what I would do. Whatever you choose to do is really your business. To each his own.
© Copyright 2013 Susan Broadbelt
www.thewhimsicalmusingsofsusan.com
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