Is It Wrong To Get A Tax Refund?

Tax ReturnIt’s March, which can only mean one thing. All the green beer you could ever want to drink!!!

Or not.

It’s also the time of year many Canadians will begrudgingly start working on their taxes. If you’re anything like me, tax time is a myriad of forms, paperwork, and other tedium I really should have gotten around to in October. But here we are.

For most of you reading this, tax time isn’t so bad. Chances are you only have income from one source (your job), or maybe another source like a side hustle or investment returns. Add on a slip for your RRSP contribution, and that’s about it. Spend an hour on Turbotax and you’re done.

The average Canadian also overpays during the year — by design, since the last thing the government wants is to have to hound everyone for taxes at the end of the year — to the tune of more than $1,000, a pretty big chunk of change.

For years, the same advice has been given to taxpayers. Instead of getting a fat refund at the end of the year, you should opt for less tax taken off at the source and enjoy that money year round. If your refund is $1,200, wouldn’t you much rather have $100 extra per month? After all, there’s value in having money now compared to a year from now.

While that’s true, I’m of the belief that, for most people, it doesn’t really matter. Here’s why it’s okay to have a tax refund.

Pros aren’t really pros

Think of it this way. For the sake of simplicity, let’s divide people into two groups, even though real life doesn’t work that way. We’ll call them the financial studs and duds. The studs are maxing out retirement accounts, living frugally, and so on. The duds are doing everything wrong.

Let’s assume both groups get a tax refund each year. The studs do smart things with it, while the duds spend it on green beer and other silly things. Would that really change if each group of people had the tax refund to spend in equal increments over the year? I’m guessing not.

In fact, I’d even argue that the duds of the world are more likely to do something smart with the cash if it all comes in one big lump sum. There’s a huge psychological benefit to paying off a quarter or a third of your credit card at once, while many people wouldn’t even bother throwing $100 per month extra at it because it doesn’t feel like they’re doing anything.

The other anti-tax refund argument is that having the cash now is more valuable than having it later. For the most part, this is true. In theory, you could invest that cash for a few months and end up with gains.

But in reality, putting $100 per month in the bank at 1% interest gives you a whole $6 extra per year compared to the person who gets it all back at the end of the year, since you’d slowly be depositing it over the year. You’ll forgive me if I don’t get excited over that. You could make gains higher than that in the stock market, but those are hardly guaranteed.

But saying all that, I am in favor of you getting rid of your tax refund. Just not in the way you’ve been taught.

A better plan than getting a tax refund

There’s a really easy way for you to minimize your tax refund in 2015. All you have to do is earn more money.

I’m not talking about getting a raise at work, although that’s not a bad idea either. Instead, leverage your skills into a profitable side hustle. You’ll make income that isn’t taxed at the source, which will eat up your tax refund. Just be sure to figure out the tax implications of your side income so you’re not running into a different tax problem — being short.

There are other advantages to having a side hustle. You can write off part of your house as a home office, and chances are you can write off anything from a portion of your vehicle expenses or internet as well, depending on the nature of your business. You’ll make extra cash and cut down on your expenses.

There are hundreds of reasons why having a side hustle is a good idea. Using it to avoid getting a huge tax refund is just icing on the cake.

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Should you pick gold as your alternative currency?

Gold Bar on WhiteThere are a lot of alternative currencies right now. Sustainable Personal Finance has mentioned a couple of ones in the past including the Canadian Tire Money and the Salt Spring Island’s local currency. Using alterative currency helps boost your purchasing power especially when your country’s official currency is weak. While purchasing alternative currencies that are specific to a certain nation is good, it’s better if you have something that most countries around the world consider as legal tender.

Gold’s remains as the most popular alternative currency because it’s finite, can be accepted as payment in most countries, and is backed by real value. Bitcoin, the newer alt currency, was the hype several years ago but lost most of its shine because of one thing: it isn’t backed by anything. Bitcoin is just computer generated and once it loses its demand over the years, it can’t be melted and used for other things unlike the precious yellow metal. Gold, apart from being a currency, can be used in making medicine, aerospace components, and electronics.

What’s great about gold is that it can be purchased in many forms. If you can’t afford a bar, you can always buy coins that differ in content. Some have 1/4, 1/2, and sometimes 1/10 gold content to accommodate investors on a budget. Although jewelries don’t cost as much as gold in the form of bars or coins, they can still make neat investments that you can liquidate in case of an emergency. If you don’t want to store gold in your own home, you can always open an account in your bank and let them keep your gold reserves.

Investing in gold for the short term is good but the yellow metal’s true purpose lie in the long term. Most people invest in it, forget about it, and just remember it in case markets go bad. In other words, investors don’t sell gold even if its prices reach all-time lows and only liquidate it in case of an emergency.

Germany is the best example when it comes to investing in gold for the long run. Thanks to its vast precious metal reserves, it was able to keep its stability during the great inflation in 1970s. Today, the precious yellow metal costs around $1,200 an ounce and if Germany decides to sell all of its gold, it would be able to support its own economy for years without the help of any other country.

Remember, holding an alternative currency can help in times of emergency. If you’re going to invest in one, make sure to pick something that is accepted in many countries.

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