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.

photo by:

5 Reasons Why You Need Life Insurance

Life insurance is one of those things that you hear about often, and figure you probably need, but for whatever reason you just never seem to pull the trigger. Perhaps it’s a bit of a phobia – realizing that you will die relatively soon, or maybe you just don’t care for the extra payment that comes with life insurance each month. Whatever the case may be, it is still likely that you should have life insurance. Here are 5 reasons why:

1) Your Savings Wouldn’t Cover Your Own Funeral

As each month goes by, you might realize that your savings account will always look pretty bleak. If you died today, would have you enough money in your account to cover a $10,000 funeral? For most, the answer is likely, “No”. If this is the case, then perhaps a small life insurance policy would make sense. Those that are fronting the costs of the funeral would receive the funds from your life insurance policy to cover those expenses.

2) Peace of Mind For Your Spouse

Many times, insurance is simply assurance for your spouse. Getting through everyday life is hectic enough. Your spouse doesn’t also want to think about what he/she would need to do if you died next week! Insurance can often make a relationship much less stressful because there is never a question of what would happen financially when you are covered by life insurance. Do you want your day to day life to be more peaceful? Then perhaps you should buy life insurance online to mitigate those concerns!

3) You Have Kids That Are Costly

If you have small children, then you know they can be costly. Clothes, food, shelter, diapers – these items can really add up! And, what about their college funding? Is that in place? Again, many may not have considered this costly future event. If you planned to help your kids out with college and it would have been a struggle while you were alive, what if you passed away? Do you think your spouse would be able to afford that additional cost? Life insurance can be a possible solution for this scenario as well. Since the insurance company would pay out as a lump-sum, this amount could, in theory, be applied to the college tuition. Your kids would definitely love you for taking care of their steep college costs!

4) Your Work at Home is Worth Much

If you are a stay-at-home mom, you might not receive a weekly paycheck, but your services are definitely valuable! Think about how much it would cost to put your kids in daycare every month. Many times, this cost can be $1,500 or more! If you were to pass away without life insurance, then this is exactly what it would cost for you since you would have to put your kids in daycare while working a full-time job to survive! It is not a pretty picture, and many people that are put in this situation sure wish they would have had life insurance.

5) You’d Like to Leave an Inheritance to Your Adult Children

There are many older adults that are starting to worry about the costs of health insurance and long-term care. Chances are, these items alone will eat up their savings accounts, allowing them to leave nothing to their adult children. If you are in this scenario, then perhaps a life insurance policy would be a feasible way for you to pass on an inheritance to them.

Don’t Wait Until It’s Too Late

We are all guilty of dragging our feet at times, but when your family is depending on us to cover costs and provide for their well-being, then dragging your feet simply shouldn’t be an option. Can you relate to any of the above reasons to buy life insurance? If so, then I would suggest talking to your family about it, and also to a certified insurance specialist. Setting up a policy probably won’t be fun, but it’s just a necessary step in being an adult and taking care of things, even after you’ve passed away.

Are you in need of life insurance today?