As heard on the radio...
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Listening to a financial radio show this morning...
A financial advisor was talking about things he had learned after working in the biz for a couple of decades...
- Income tax. For years, he preached to his clients about having too much tax withheld. Ideally, at the end of the year, you should owe the government less than $100 or they should owe you less than $100. He noticed that his blue collar clients usually withheld too much tax, sometimes getting refunds in excess of $1K or more. he thought this was giving the government an interest-free loan, until he started to do a deep dive on how his clients viewed the money and what they did with it.
First, he looked at it based on 26 paychecks and the prevailing interest rate in passbook savings accounts. The interest paid was next to nothing, and you had to figure the money deposited in the last quarter really made only pennies. Then, he looked at what his clients did with the refunds. Most of his clients considered the refund as a form of forced savings, much like a Christmas Club account. The extra $20 or $30 a check they paid in, did not make much difference in their spending habits or in their standard of living.
Almost all of his clients had the money earmarked for something. A new stove. A small home improvement project. A weekend getaway. Maybe brakes for the car or some type of maintenance that could be done when the money came in.
Nowadays, the advisor talks to his clients about how they will use the money, before telling clients how to adjust withholding rates.
- The latte tax. For many years, advisors have beat the drum with young professionals about their coffee habits. For instance, a latte every morning on the way to work, will cost you $25/week. maybe more. Mochas are even worse, as they cost about $1/cup more. As the advisor tells his young clients, drink your first cup of coffee at home. Even a cup of Keurig coffee with cream and sugar is less than $1. Splurge on your latte for a treat, but don't make it a habit.
But, he discovered where young workers made an even worse financial mistake, one that cost most of them over $1000/year. Sometimes much more.
Young people love services like Door Dash or Uber Eats. The advisor found most meals, by the time you figured cost of meal + delivery, cost his clients from $50 to $100. Most of his clients used the services at least twice per month, with some using them once per week (on average). The young clients were spending thousands on delivered meals. His advice? Cook at home most of the time, eat at lower end restaurants like Applebee's some of the time and eat at better end restaurants for special dates and occasions. Use Door Dash only for the blue moon event.
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Both points are good.
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We’re normally smack on (give or take $100) but occasionally have been getting +$2000 returns while Luke’s at school. I didn’t bother making adjustments. Next year he’ll graduate and the next year I can’t claim him anymore so it will go the other way a smidge. I’ll adjust then.
I do kind of agree with the guy. The extra $150 a month would likely have been spent on a nice dinner or some such, but the $2,000 winds up going for something substantial and important.
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Make your own food, don't rely on spending money to be entertained and don't leave the house. That's basically the strategy.
We do #1 almost always, #2 almost always and #3 about half the time. Lotta cool parks and such nearby to let
methe kiddo get some unstructured play in. -
We used to use the tax rebate as a mini-bonus - we tended to get a decent one when we had a big mortgage. Now, it's pretty much zero, but we do have a bit more disposable income than we had back then, as what remains of the mortgage payments are in turn a lot lower.
We're a bit lazy with cooking - we use Feast and Fettle for a couple of meals a week. It's cheaper than eating out, which we only do maybe once a month - that's got a lot cheaper since we stopped bringing the kids with us.
