Imagine this conversation…
Have you received your W-2 forms?
Yep. It’s the most wonderful time of the year!
Christmas is over. Santa has left town.
Not talking about Christmas. It’s TAX REFUND SEASON!!
Why are you so excited about tax season? You do realize that getting a tax refund means you’ve been loaning Uncle Sam your hard earned money all year and did not get paid a dime in interest.
What’chu talkin’ ‘bout Willis?
Generally speaking, when you receive a tax refund that means you have paid too much in taxes throughout the year in the form of payroll deductions. Uncle Sam and Ms. FICA have been kicking it with your cash all year long. You could have had more money in your hands each paycheck. Essentially, you provided an interest free loan to the government. Where can you go and get an interest free loan?
Well, she loves you. Uncle Sam and Ms. FICA don’t. So, I totally get why receiving a lump sum of cash is what’s up. What do you plan to do with your refund?
The shores of Cabo are calling. Don’t you hear it?
I would look mighty fine in that new car. You see it?
Is your credit card balance at zero?
Nope. Wait, which one?
Do you have an emergency fund?
Hmph. Don’t play yourself.
Americans Are Drowning In the Deep End of Debt
Trillion, with a T: Americans have reached a record high $1.02 trillion in debt as of November 2017, according to the most recent report by the Federal Reserve. Revolving debt balances (primarily credit cards) increased 13 percent from the previous year. NerdWallet reports the average household has $15,654 of credit card debt. How did we get here? The survey reports the top reason for debt accumulation is “spending more than you can afford on unnecessary purchases.” Real talk. Paying for emergency expenses (unexpected major home repairs, gaps in employment, etc.) was a close second.
While this number may not fully reflect your story, we all know a friend or family member who is swimming in the deep end of the debt pool. No life jacket. Some have drowned (bankruptcy). Not enough time to go there, but the emotional/psychological toll debt places on a person, marriage or family is a real concern as well.
Moral of the story?
People, don’t play yourself. Make a different choice to get a different outcome. If you happen to receive a tax refund this year, seize the opportunity to make incremental progress toward your financial goals. Want to reduce your credit card debt? Use a portion of the refund to pay down some debt. Take a moment to list all of your debt balances and interest rates. Start tackling the balances that carry the highest interest rates first.
Want to build that emergency fund? With a lump sum of cash in your hands from a tax refund, NOW is the time. EVERYONE needs at least 6 – 9 months of monthly expenses saved, tucked away and not touched in an account for EMERGENCIES ONLY. What happens if you lose your job? How will you pay your rent or mortgage while searching for another job? What if your roof begins to leak or your car goes on life support? How will you pay for repairs? Your goal is to be in a position to cover unexpected expenses without using credit card debt.
Debt is not the devil, but mismanagement of it is. Please, don’t play yourself.
Corliss is a lifelong Chicago West Sider who has a thing for money and has learned from a few mistakes over the years. She is a fierce auntie, passionate about improving community and educating our babies. She happens to be a Certified Financial Planner TM, has worked a few decades in many areas of banking and views financial literacy as a personal ministry. Join her Facebook page Got My Mind on My Money and My Money on My Mind. Contact her at firstname.lastname@example.org with comments or questions.
The topics discussed and opinions given are not intended to address the specific needs of any reader. They are for informational purposes only and are not to be construed or relied upon as pro-bono, paid or any other advice. The information herein does not offer legal, tax or other advice, and readers are encouraged to discuss their individual financial needs with the appropriate professional advisors. The opinions and thoughts expressed herein are solely those of the Writer and not those of the Writer’s employer(s) or any other affiliations. Writer assumes no liability for any loss or damage resulting from errors or omissions or reliance on or use of the material herein.