What Are You Doing With Your 2017 Tax Refund?

We are lucky enough to already have our taxes done and filed.  I anticipated that we would get a refund (which we’re OK with).  Now the idea is how are we going to apply our 2017 tax refund.

Goals

Our goal with our tax refund has always been a mix of things.

  • Boost Savings Goals.  When there is something big we’re saving for, money gives us the chance to help things along.  This has helped us when we needed big projects done around the house.  Examples: A new roof a few years back or exterior painting last year.
  • Offset Spending Needs. If there is spending we know we are going to do regularly, sometimes this can give it a push.
  • Repair.  Getting this fixed or maintained is something I’ve always used when applying refund dollars.
  • Enjoyment.  As you’ll see below, putting our refund to use for vacations is a strategy we use.

Breakdown

Without going into exact figures, here’s how things shape up:

  • Vacations.  We are allocating roughly half of our refund toward vacation funds.  This actually applies to four different areas:
    • Our 2018 Disney Trip.  We’re going on a trip next month and this will help complete the payment.
    • A 2019 Florida Trip. Disney is a treat this year. Normally, we rent a condo down in Florida.  We’ll have to put a deposit down a year in advance. This will fund that deposit.
    • Anniversary Trip. We sometimes go away for a weekend around our anniversary.  This will help set money aside for next time we do this.
    • Camping Trips. This helps fund our summer trips.  What we put aside will fund about 10 days of camping.  That definitely helps!
  • New Camper. We’ve had our current camper for around seven years.  It was used when we bought it.  Eventually we’d like to look at an upgrade.
  • Car Repair. Throwing a little toward eventual car repairs and maintenance?  Why not?
  • Home Repairs. We don’t have any projects planned.  This will help with any just-in-case things, or for future projects.
  • Kids Activities. This is for things like summer camps and such.
  • Repairs. We have two things we’d like to get repaired or in for regular maintenance.
    • Lawn Mower
    • Clock. I have an antique clock wind-up clock that needs repair. It’s likely over 100 years old and is a family heirloom.
image from Morguefile courtesy of jackiebabe

Boring And Proud

This might sound like a pretty boring list.  In fact, it really is. But, I’m kind of proud of that!  I would like to think that this is helping us get a mix of several things.  We are using it to enjoy ourselves.  We are using it to take care of our stuff.  And, finally, we are using it to save for future goals.

If that’s boring, then sign me up!

Readers, what are you doing with your refund money this year?

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Why It’s OK To Get A Tax Refund

Don’t get a tax refund.  That’s one of the first things most personal finance bloggers will tell you.  It’s giving the government an interest free loan.  That’s what they will say to justify the reasoning.  Keep the money yourself.  That’s the advice you’ll get.  Earn the interest on your own money.  That’s the benefit you’ll be told justifies it.

I’m here to tell you that you don’t need to worry about it.  If you get a refund, even a large one, it’s no big deal.  It really isn’t much of a problem at all.

The Justification For No Refund

Avoiding a tax refund was one of the first big tenets of personal finance I heard when I started reading money blogs.  That was over ten years ago.  I listed above the reasons, but it basically boils down to the idea that you shouldn’t give the government an interest free loan.  It’s money that you paid all year that you get back, right?  So, you should earn interest on it.  Interest is more money.  More money is great for personal finance. It all makes perfect sense.

It’s Stale Advice

Back in the day ten years ago, I was 100% for this.  However now, I really don’t think it’s that important.  Why?  Two

image from Morguefile courtesy of clarita

words: Interest rates.

Ten years ago, banks were flying high and paying out big interest on savings accounts.  Getting a yield of 5-6% was not uncommon.  Things like CDs and such could get you 7% or more.

That was pretty big money.

Now, interest rates are pretty low.  The biggest savings rate I earn is 1.75%, and that’s up big from a few years ago.  It was 1%.

Say you get a $3,000 refund.  Your interest, back in the heydey, could have been as high as $210.  Now, with 1.75%, you’d get $52.50.  *I know that it wouldn’t come to these exactly, but for simplicity purposes, I’m going with these.

When Something May Not Be Better Than Nothing

One thing I still hear is that, even with low rates, it’s still free money.  After all, while $52.50 isn’t as much as the $210 you could have earned, it’s still $52.50.  You should grab it, right?

My answer: Sure, but….what about temptation?

See, when you get extra money in your check, it’s easy to say that you won’t spend it.  But, what if you do?  In my example above, it would only take $52.50 of spending through the entire year before you come out behind.

Think about that.  $1 per week and you’d be behind.  One night out with dinner and drinks.  You get the point.

You Can’t Spend What You Don’t See

Getting $52.50 is certainly nothing to sneeze at.  But, if you take away the temptation to spend that throughout the year, most people won’t.  If you don’t see it, you’ll be less inclined to spend it.

Is taking away $52.50 a small price to pay to end up with a guaranteed $3,000?  I think that for many, it might be.

It’s All Discipline

Many will read this and be aghast.  They’ll say that of course they could save that money every week.  They’ll point out that any money left on the table is foolish.  They’re right.

But the fact is, those people are in the minority when it comes to saving.  Many people may not be disciplined enough to end up with that full $3,052.50 at the end of the year.

See, I’d rather a whole bunch of people end up with $3,000 than end up with $2,500 because they spent $10 per week throughout the year.  For many, that’s worth it.

Know Yourself And Trust Your Gut

If you end up getting a hefty tax refund, don’t beat yourself up.  If anything, understand that it’s still your money.  Interest alone won’t make you rich, so don’t sweat the lost opportunity.

If you think you can make the change, then do so. Keep the money.  Enjoy the interest.

But if you decide it’s not worth it, don’t sweat it.  If you think you might get tempted to spend a little bit, then let the government have their loan.  Take your refund next year and enjoy it.  I promise it’s not that big of a deal.

Readers, what do you think about getting a tax refund?  Am I violating the personal finance code of ethics, or do you see my point?

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Why Cut Taxes Right Now?

Everyone hates taxes, right?  I know I certainly do.  You may not think so based on the title of this post, but I get it.  As every American probably knows, the big move right now is to reform taxes.  The President wants to cut taxes.  The Republican House and Senate seem to be moving forward.  I guess I’m just not sure: Why cut taxes?  At least right now.

Does Anything Get Fixed With The New Proposals?

My biggest concern with what I’m reading is that things don’t seem to get fixed.  When I look at taxes, the problem I have is how arbitrary things are.  You have, as an example, a $3,000 limit if you lose money on stocks.  That’s the most you can write off in a year.  This is completely arbitrary.

Take the alternative minimum tax.  That’s been in place for decades. They always do a year by year change to exempt most people from it.  Does the new plan get rid of it or fix it for good?

The rich currently benefit from the thousands of deductions and credits more so than any other group.  It does stand to reason that if you make more money, you have more opportunities here.  Still,  ‘simplifying the tax code’ was a rallying cry for President Trump.  Is it going to get any simpler?

Business taxes are going to be cut under the new proposal.  This is supposedly to attract or keep businesses in America.  The thing is, I haven’t heard a single business say that this would make a difference?  Will it?  Or will businesses simply pocket the money?

At the same time, businesses paying less are supposed to expand.  In theory, taxes go down meaning there’s more money.  More money should fuel growth.  Will this work?

The tax cuts are supposed to increase household income.  But does this rely on businesses paying more from their tax savings?  I’m not sure businesses will do that.  More often than not, shareholders, not employees are rewarded.

These are just a few examples off the top of my head.  And while I may have missed some details, I’ve not seen these things addressed.  Are we really ‘fixing’ anything so much as ‘changing a bunch of stuff’?  And is that a good idea?

Does A Tax Cut Make Political Sense?

I’m kind of confused why Republicans are standing behind this.  Polls show that most citizens have doubts about this.  They seem to be pretty knowledgeable that the middle and lower class are not the primary beneficiaries.  Yes, the ‘trickle down’ effect is supposed to help them, but there’s a lot of skepticism.  With good reason, I would think.

So, I wonder why Republicans are standing behind this.  People would love a tax cut.  I’m just not sure the majority of voters will love this tax cut.  If this passes, and people aren’t happy about it, they’ll take it out on politicians next November.  After Republicans lost several key elections last month, this has to be worrisome.

But, it could be that they’re screwed either way.  After all, to be the Republican that says no to a tax cut, even a flawed one, could be used against them.

The Economy Is Bad, Right?

No, of course not.

Usually tax cuts happen when the economy needs a boost.  Tax cuts happen to get us out of a recession.  Or when growth is flat.  But, we’ve been in a period of economic growth for practically ten years.  It hasn’t been fabulous growth, but it’s growth nonetheless.

So, what’s the motivation for the tax cut?  And is it a good idea?  After all, if we cut taxes now, what happens during the next eventual recession?  A tax cut now will make it harder to play that card when it might be needed.

My Opinion

As I’ve said above, I would love to pay less taxes.  I’m just not sure this is the way to go.  I’m not in favor of any plan that puts the majority of cuts in the pockets of the rich.  The middle class is losing pensions and pays more for health care.  The lower class has a harder time than ever finding full time jobs.  These are the people that need the help the most.  Promising that the help will get there by first giving the savings to the rich is a bad idea.  The rich show that they will likely use that money to simply get richer.  They’ll invest it. They’ll save it.  What they won’t do is pass it down.  At least, not as their first option.

And I’ve already made it clear my thoughts about the impact to the deficit.

So, the answer for me is a firm no.

Readers, what do you think of the tax cuts?  Are they fair? Should we cut taxes at all?  What changes would you make and what would you keep?

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Remember When Federal Budget Deficits Mattered?

It’s so interesting watching the latest talk from Washington come through.  It’s all about potential tax cuts and what they mean.  President Trump is touting a plan that would lower taxes for many businesses and people.  He claims it will help the middle class.  Pundits argue it mostly helps the rich.  Either way, it’s interesting that very little attention is given to the budget deficits and the impact that the plan would have.

Budget Deficits

For as long as I can remember, the federal government has run a budget deficit.  There were a couple of years under President Clinton when there was a surplus.  However, that seems to have been a blip on the radar, and very much an anomaly.

The government spends more than it brings in.  They’re the only level of government that is authorized to do so.  States, cities, townships and the like must all balance the budget.  The federal government does not have to do so.

And they don’t.

When a deficit is created, the government essentially issues bonds or bills and repay them down the road.  For decades, it seemed, people would worry about this.  They figured too many would devalue the dollar.  People worried that it could spark inflation.  Some worried what would happen if the market got saturated and there was no demand.

With all that, it was always thought that limiting or eliminiting deficits was the right idea.

I remember that budget deficits were a big point of most presidential elections as I was growing up.

Why No More Concern?

But it seems that the impact of budget deficits has waned.  Our deficit has exploded over the past fifteen years.  Yet, when the latest tax plan was introduced, the potential impact was nowhere near the top talking points.

So why is that? Why don’t budget deficits matter anymore?

Well, first, is that inflation seems to have really lowered the cost.  With inflation at historic low numbers, the government has to pay very little interest.  So, they can borrow practically for free.

Next, the demands for the US Dollar seems limitless.  Where many once feared too much debt could destabilize the dollar, that hasn’t happened.  At all.  It seems that as long as we issue debt, there are foreign countries willing to buy it.

Finally, I think it’s seen as an investment.  Cutting deficits would mean cutting programs and jobs. This would have a negative effect on the economy.  Some might argue that deficit spending has partially helped the economy chug along for the last ten years.  An argument could be made that cutting or reducing the deficit would be worse in the long run.

What’s Next?

I don’t have any idea how this plays out.  One could argue that there has to be a limit. However, you could also say that twenty years ago, the current deficits would have been unimaginable.  If George H.W. Bush or Bill Clinton had suggested the deficits we have today, they’d have been run out of office in a hurry.

So, really, as far as what happens next, who knows?  It’ll be interesting to watch, though.

Readers, what do you think about the current federal budget deficits?  Do you think the current deficit spending is sustainable?  What about adding even more with the proposed tax cuts?  

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.