Many people over pay on their taxes, or have extra taken off each payday so they get a bigger tax refund each year.
How did you do on your taxes this year?
Did you end up paying more than you should, and are getting a big return back?
With rising inflation, you’ve lost about 5% in purchasing power on your money. That means if you overpaid $100 a payday, that will only buy $95 worth of goods now because the government does not pay interest on the money you overpaid.
On a $2600 tax return, that’s a difference of $130!
At today’s prices, that’s half a tank of gas! 😂
Kidding aside, let’s talk about what to do with the over payment you’re getting back.
- If you’re expecting a big tax refund, contact your employer and have that adjusted so you get more back each payday instead of waiting until next May to get it back and lose all that purchasing power.
- Take the additional take-home pay and add it to your Cash Reserve every payday and have it working for you for an entire year.
- Even if it’s only $100 a pay check, that will grow your money to $2700 by next May, assuming it grows at 8% per year.
- If you’re expecting a return, now would be a good time to put that into your Cash Reserve too. If you did that, and took the additional take-home pay, it would grow to about $5500 by next year.
Now you’ve got money in reserve that you can use to pay for all of your insurances like home, car, life, disability, critical illness in advance for the year. That will save you another 8% minimum each year. Insurance companies charge you extra for making monthly payments.
The monthly payments you just eliminated can be used to grow your long term investments.
Let’s say that’s $400 a month, and you put that away for 10 years. It would grow to about $73,000 at an average 8% a year.
So are you sure you want to still be giving the government extra on your taxes every paycheque?
Hope that helps…
PS. Of course these numbers are for illustration purposes only. Your outcomes will differ given your risk tolerance and investment amounts. If you need guidance getting your finances in order, seek out a qualified financial professional.
If you live in BC or Alberta, I am available to serve you. You can book a meeting anytime.
That’s all for today. One simple tip that will save you time, money, and your sanity.
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