With taxes due just around the corner, you have (or soon will) find out whether you’re paying or receiving a refund. While a large tax refund is fun to get, it’s also an indication that you’re not having the correct amount withheld from your paychecks.
When you receive a large tax refund, what you’re basically doing is giving the government an interest free loan. If you are not confident that you will be able to save this money on your own, then paying too much to the government can be a “forced saving” method, but you’d be much better off having the money deposited into your bank each month and then having it automatically withdrawn to a retire savings account before you can touch it.
You may also want to change the amount of money that is being withheld if you had a life change in the past year which will effect your taxes. If you got married, got divorced, became a parent, got a part-time job or have new income not subject to withholding such as rent, you’ll want to readjust the amount being withheld to take these new circumstances into consideration.
Once you have gathered all the pertinent information, make an appointment with your company’s personnel department which should be able to help you adjust your tax withholdings so that you’re not having too much or too little taken out of your paycheck.
Having the correct amount withheld should free up money that can be used to pay down credit card debt quicker or placed in savings accounts to earn interest. Either way, it’ll save you money over letting the government keep it for you.
For those that want to do some more reading, the Festival of Frugality is up.