Welcome to Car Talk. This is not talking about cars. This is talking inside of a car. Today’s topic is about tax returns. Most of you, every year, hope, plan on tax returns, getting some money back. People like me, all we do is pay money every quarter. You never get anything back. All you could hope for is to pay a little bit less from quarter to quarter but that ties in with making a lot of money, just kind of the way it goes. So, you pay a lot when you make a lot. But most people, most people within a job, within a company, hope for tax returns, kind of plan on a tax return. Now what do you do with that money? That is what this car talk is about. I’ll kind of glaze past the fact that a tax return is an interest-free government loan. Because you have loaned money to the government, year round, to get it back in tax time without interest. So putting that aside, I’ll just touch on it. You might wanna consider adjusting your withholding so you don’t get a big return because you’re just giving the government an interest free loan is what you’re doing. Putting that aside, most people get it and I implore you, I ask you, please be smart with it.

Don’t go buying things and spending money on things you don’t normally want to get. And that’s because people get this money. ‘Cause if you get, say, a round number, a thousand dollar tax return, that’s what, $900 a month? Sorry, $90 a month out of your paychecks you’ve loaned the government. Now, if you get a lump sum of $1,000 either with the IRS check or direct deposited, you’re probably gonna go do something it. You might buy a TV. You might take a weekend getaway. Might do anything like that. And I’m not here to knock doing that but what I’m here to say is that when people get returns they tend to do things more frivolously than they would otherwise if that money was just inside of their paychecks every week, every two weeks, every month, however you get paid. Because if you got paid $90 more a month, you probably wouldn’t buy another TV. You probably would save or invest it or do other things with it, maybe more needs versus wants. But, when that gets cut out before you ever see it and instead you take that $1,000 you get every year as a return and buy something frivolous, that is money spent you probably should have saved in the first place.

I would probably suggest instead of that, adjust your withholding so you don’t get much of a return but still save that extra $90 a month or invest that because even though making a lot of money is a part, a big part of living a certain kind of lifestyle, probably I would argue a bigger piece of that puzzle is how early, how much, how long, you systematically save and invest. We have, with my business, offered to myself as an employee with the legal structure as well as my two teammates, Ben and Josh, starting in 2018 a new company sponsored retirement plan like 3% pre-tax dollars and then a company match of up to 3% and even though it is optional I do push, push, push that both Ben and Josh take full advantage of the pre-tax deferment as well as the up to 3% for the company match and I tell them clear, this is money out of my pocket so if I’m telling you to do it, I really mean it’s in your best interest because if you didn’t do it, that’s more money directly into my pocket. So, systematic, long-term investing is something you wanna do. But that’s a big digression. Tax returns, be smart about it. Be smart about it. Maybe you should adjust your withholding so you don’t get a big return and if you’re not gonna do that ’cause that’s asking a lot of somebody. I get that. But maybe when you get your tax return, pay that towards a bill. Pay that towards a credit card debt. Pay that towards a student loan.

If you get unexpected money, you should attack what needs the most tacking in your personal finances, which tends to be the highest interest loan you have. Student loans which are non-dischargeable in bankruptcy. You might have personal loans, credit card loans, they tend to be the highest because they’re not secured. So, if you get a tax return this year, if you get one, I ask you please, one, which is asking a lot, you might not do it, I know that. But, consider adjusting your withholding so you don’t get as much back. But if you’re not gonna do that, consider paying down some high-interest debt, saving, investing, creating that emergency fund you might not have enough of yet. Twelve months, some say eight, I say twelve months living expenses, liquid, easily accessible. But no matter what you decide to do, be smart about it. When you get a tax return, you need to be smart about it. Don’t go frivolously, stupidly spending money on things you don’t need and buying a TV and a new watch, or a couple new pairs of shoes, or a fancy purse, whatever your thing is. Be smart about it. Don’t just start spending money on stupid things. Take that and do something smart with it, smart with it. Pay down high-interest debt. And if you already got all your high-interest debt paid down, save it, invest it. Long-term, systematic savings is a fantastic way to set yourself up for a long, comfortable retirement. Be smart with tax returns. Car Talk with Tyler Douthitt.