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All-In [46834]
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One last investment question (I promise)
Dec 16, 2015, 10:30 AM
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Due to the overwhelming response and helpfulness from (most) of the posters in my previous threads (which I greatly appreciate), I would like to run this by some more knowledgeable people than me on here.
Me and my wife have our taxes set up where they take a ton out but we get a huge refund check every year. We then use that money to pay off any and all debt we have acquired throughout that calendar year. However, I don't like this system because I don't trust the government as a "savings account" if you will. My thought kind of ties into the idea of a stock account.
If me and my wife set our taxes to what it actually is (married 1 dependent) instead of single with 0 dependents, we will get more money back in our check and not owe any at the end of the year. We then take that extra money that would have gone into our tax refund check and deposit it every 2 weeks (our pay period) into the stock account in a growth fund and at the end of the year use the dividends to pay off any debt we acquired during that year (medical bills, credit card balance, etc).
Would the dividends be enough to cover this or would it not be worth my time.
Yes I try not to go into debt but let's face it.. life happens and sometimes we have too. However, I never keep debt for more than a year so I feel like it is a manageable risk because we also don't have more debt than we can pay off with what's in savings should we get in a bind.
Once again guys I really appreciate all of this help and the well thought out suggestions yall have offered.
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Oculus Spirit [96876]
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Your goal should be to break even at tax time. You don't
Dec 16, 2015, 10:34 AM
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want the government to have use of your money all year when you could be using it for other things -- like paying off debt.
I doubt the dividends would amount to a whole lot -- we're talking $1.50 (or whatever) per share per quarter.
Just use the difference in your paycheck to pay off debt as you get paid.
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All-In [26322]
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Claim 9 dependents and not give a sh*t throughout the year
Dec 16, 2015, 10:39 AM
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Works for people that have told me about it.
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All-In [46834]
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Re: Claim 9 dependents and not give a sh*t throughout the year
Dec 16, 2015, 10:40 AM
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Yeah I know a guy who did that then changed it right before tax time. Worked great until he got audited.
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Legend [15914]
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Your W2 is just a guide so that your taxes will be even
Dec 16, 2015, 12:41 PM
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at the end of the year. As long as he didn't claim 9 on his end of the year W4, he wouldn't be doing anything wrong.. just stupid. I'm sure he iwed a pretty penny, but there's nothing illegal about it.
I work shift work and sometimes change my w2 for 2 paychecks to maximize those funds. As long as I change it back, it works out on my w4 at end of the year.
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Commissioner [970]
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Orange Blooded [3221]
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Look up "Time Value of Money"
Dec 16, 2015, 10:40 AM
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You are basically giving the government an interest free loan with your excess witholding. A dollar today is worth more than a dollar tomorrow; think of what you could do with the extra money each pay period by changing your witholding; you could but it in an interest bearing account rather than letting Uncle Sam hold it for you for free.
I agree with the other posting in the tread, my goal is to be around break even at tax time.
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All-In [46834]
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Re: Look up "Time Value of Money"
Dec 16, 2015, 10:42 AM
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That is kind of what I'm getting at. Put it into an account where my money make money then use the interest (or in this case the increased value of the bonds, dividends) to pay debt while keeping the principle in place as a nest egg as protection from a future unexpected expense where we would need an increase in cash flow.
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All-In [46834]
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Re: Look up "Time Value of Money"
Dec 16, 2015, 10:43 AM
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stocks not bonds. sorry.
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Rock Defender [54]
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The key is to actually do it. If you are living anywhere
Dec 16, 2015, 10:44 AM
[ in reply to Re: Look up "Time Value of Money" ] |
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close to paycheck to paycheck, you are very unlikely to be disciplined enough to follow through and not just spend the additional amounts.
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CU Guru [1065]
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^^^^^^^ This guy gets it. ^^^^^^^
Dec 16, 2015, 11:00 AM
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Fo' reals.
Go Tigers.
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Letterman [285]
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CU Guru [1632]
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You won't make enough in the form of interest
Dec 16, 2015, 12:27 PM
[ in reply to Re: Look up "Time Value of Money" ] |
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or dividends to cover your debt. Any gains you sold to pay for your debt is subject to taxes. Investments sold within a year of purchase are subject to short term capital gains tax (taxed as ordinary income) That will be a killer.
Interest in a taxable brokerage account pays nothing.
A couple of things I will offer you:
1. Pay off any and all (anything other than a mortgage which is at least deductible) of your debt BEFORE you invest money in an taxable investment account. 2. Create an emergency fund for yourself to cover yourself for unexpected expenses. 3. Max out your retirement holdings from your employer where hopefully you get some sort of match. 4. Be leery of any "advice" you receive from this forum. Everyone has an agenda.
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Rock Defender [54]
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What's your agenda?***
Dec 16, 2015, 12:29 PM
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CU Guru [1632]
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I don't want to see a young impressionable poster
Dec 16, 2015, 12:32 PM
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make a bad decision.
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Rock Defender [54]
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Typical annuity salesman response.***
Dec 16, 2015, 12:34 PM
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CU Guru [1632]
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LOL By no means am I "an annuity salesman"***
Dec 16, 2015, 12:36 PM
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Rock Defender [54]
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Sorry, "Insurance Professional"***
Dec 16, 2015, 12:38 PM
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CU Guru [1632]
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Wrong again.***
Dec 16, 2015, 12:43 PM
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Rock Defender [54]
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Loanshark?***
Dec 16, 2015, 12:44 PM
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CU Medallion [64593]
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It's a personal preference but ideally....
Dec 16, 2015, 10:48 AM
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you want your withholdings and your tax liability to balance out so that at the end of the year you don't get a refund but you don't own anything either.
Getting a large refund at the and of the year means you've effectively allowed the Fed to use your money all year for free.
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Legend [16521]
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Target breaking even on taxes, but don't just use Married-1
Dec 16, 2015, 10:59 AM
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and hope. Pull up the tables and see what Married-1 will actually have removed from each of your checks. Then total this up and see how it stands against your typical tax liability. You will probably find that you have to withhold at some other level (Single-1, Married-0, whatever) to get the numbers to balance. You and your Wife will likely need to withhold at different levels to make it work correctly. Just my experience!
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Scout Team [175]
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Re: One last investment question (I promise)
Dec 16, 2015, 11:06 AM
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Additionally, if you are receiving the money throughout the year rather than in lump sum in the form of a tax refund, perhaps you could adjust your budget and not go into debt in the first place. If the refund is enough to pay off the debt, then the incremental increase in take home pay should keep you out of debt in the first place.
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All-In [30841]
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Unless you make tons of money. You are not taking
Dec 16, 2015, 11:10 AM
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About significant losses or gains here. You will get 1099d on your profits from stocks.
I tell people who live pay to pay check to pay more and get a return . They are bad at managing money so it's better to forcefully take that money from them.
For many years I did this and used refund fir home improvement.
Ive recently starting adjusting my dependents to get a smaller and smaller refund. My plan is getting to were I owe a hundred dollars or so.
I don't care if the government had my interest free money. . I'm doing it because I'm sick of how long it takes to get my refund. Seems to take longer and longer every year. I figure of I owe money they will process my taxes much faster.
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110%er [5093]
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Re: One last investment question (I promise)
Dec 16, 2015, 11:12 AM
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If you're dependent on that return to pay down debt each year you don't have the financial wiggle room to execute that strategy.
It's sad to see a poster so dead set on making bad financial decisions.
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Orange Blooded [2805]
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Re: One last investment question (I promise)
Dec 16, 2015, 11:19 AM
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Your MOM works at the Wiggle room.
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All-In [32656]
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^ ^ ^ ^ ^ underrated poast right here, senoras.***
Dec 16, 2015, 12:32 PM
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Starter [398]
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Re: One last investment question (I promise)
Dec 16, 2015, 11:18 AM
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This is not investment advice, because I do not know your whole situation. The way you are doing it now is not that bad with interest rates as low as they are. Long term, it is probably better to save those funds on your own. Don't know how much refund is, but hard to imagine that dividends are going to be enough to accomplish what you are doing now. Just speculating. If you use your whole refund to pay bills, equities are probably not where you want to be You are talking short term money and equities could leave you with less in the short term. Probably best to wait until you pay those items, no matter if from refund or saving, then consider investing leftover funds in manner suitable to your situation.
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Letterman [285]
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Stay the course
Dec 16, 2015, 11:31 AM
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If you reduce your dependents and get more per month, you'll spend it. Also, returns in the market aren't incredible to mitigate this risk.
Your best bet is to lower your spending to where you aren't having to pay off debt. Then at the end of the year, dump your refund into an investment or take your wife on a vacation convincing her the saving is worth it.
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Walk-On [113]
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Re: Financial Peace University
Dec 16, 2015, 11:53 AM
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Google "Dave Ramsey" or "Financial Peace University". You are putting the cart before the horse by using the refund to get yourself out of debt. You should have no debt and use the refund to build a savings account for emergencies, and/or fund your Roth account.
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110%er [7210]
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Re: One last investment question (I promise)
Dec 16, 2015, 11:57 AM
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As others have already said, waiting for a refund is a no interest loan to the government. You are also paying extra interest on your debts by delaying paying those debts down. Chances are that your interest rates on your debts outweigh anything you could get through savings/investment in this market. Figure out what your per paycheck/month difference would be and automatically add that to any debt payments you already make.
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110%er [5093]
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Re: One last investment question (I promise)
Dec 16, 2015, 12:37 PM
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This is the best advice so far.
Change your deductions and use that money to pay off your debt as you accrue.
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All-In [46834]
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Re: One last investment question (I promise)
Dec 16, 2015, 12:04 PM
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Maybe I should have been clearer.
I personally consider any expense outside of normal monthly espenses such as groceries, insurance, etc. to be extra expenses we don't need. Also, the reason why we have been doing it this way is because I have been putting my wife through nursing school on a teacher paycheck. The biggest debt we have is an air conditioner unit we had to buy for the house, considered an emergency expense (used a 0 interest credit card for the purchase and am on track to pay it off before the deadline for the interest). So I wouldn't say I'm not good at money.
Right now I am just exploring different options to set my family up for financial success in the future now that my wife has a job and we now have two paychecks coming in (the debt is from before she started working).
This is why I made the comment about not wanting to do the refund check anymore since we now have enough to take care of extra expenses should we need it.
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Walk-On [113]
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Re: One last investment question (I promise)
Dec 16, 2015, 12:11 PM
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You sound like you have developed a reasonable plan on your own which is starting to work for you. I have no connection to Financial Peace University (they conduct short term classes to help you focus your plan), I am just a fan of their concept. The author, Dave Ramsey, has a syndicated show on many radio stations, mostly in the early evening. It can also be found as a podcast. You may want to listen to one show.
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CU Guru [1632]
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Make sure you pay off that AC unit before the term ends.
Dec 16, 2015, 12:43 PM
[ in reply to Re: One last investment question (I promise) ] |
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Interest on zero interest financing is almost predatory and is back dated from the date of the purchase.
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Hall of Famer [22948]
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Rewind 6mo and buy DGAZ
Dec 16, 2015, 12:08 PM
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Regarding your question and time value of money...
The 'math' answer is to invest/pay off debts each month and not use the government as a savings account. However this only works if you have the discipline to pay yourself first. If you have a system that works, keep sticking with it (unless you use the tax refund for vacations/gifts).
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Scout Team [196]
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Re: One last investment question (I promise)
Dec 16, 2015, 12:08 PM
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Not worth your time. Unless you're dedicated and know the stock market well, brokerage accounts are generally more beneficial for Growing your money long term. IMO. But my opinion isn't THAT informed.
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All-In [49613]
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Try this for one year ... you can always switch again
Dec 16, 2015, 12:29 PM
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Set your withholding to the current dependent level, rather than 0 dependents.
Look at how much less you'll pay. It won't look like much week-to-week, but multiply it by 52 and you'll see the annual difference. This is money you'd be giving the government to play with, interest free.
Let's say it's $10 per paycheck, or $520 per year. Nothing to sneeze at, but is it REALLY going to help you pay down debt ... or should you begin socking away for the young'uns college?
The biggest question is discipline, and that's one only you and your wife can answer. Can you count on dropping the extra into debt reduction, or will the temptation to snag a pizza each week undo all good intentions?
I'm a bigger fan of having the $$ deducted at work and parked somewhere, wither savings or a 529 fund for the kid. That way it really WILL be used for something down the road, rather than be a convenient tap for short-term stuff.
Best of luck!
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Legend [15914]
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I've done this same thing for 8 years. I loved getting
Dec 16, 2015, 12:38 PM
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that fat check in Feb when I file. But, I've done that in the past because I have not been responsible or disciplined enough to set up a savings account and put the money in it.
I would highly advise against putting that money into the stock market in year 1. Its too risky if its money you are counting on. Lets say you set up a savings acct.. every 2 weeks, your money that would have gone to "extra" taxes now comes to your new savings acct. At the end of year 1, if you have more money in that acct than debt to pay off, let it ride until year 2. If you have extra money after year 2, then start considering stocks.
My preference is to maintain a base amount, then the extra can be invested. If you are doing online trading on your own, buy your stocks quarterly at a minimum to avoid transaction fees and use a broker that does not charge maintenance fees.. I use Scottrade, but shop around.
Maybe in a few years you'll just break even, ot maybe you'll have a sweet little savings and some investments.
Good luck!
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All-Pro [682]
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Re: One last investment question (I promise)
Dec 16, 2015, 4:44 PM
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One might question your common knowledge to ask posters on this site for investment advice. You would be well advised to go to some one who has some knowledge of what they are doing. Read some of these post and ask yourself if you are sure your asking the right people.
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All-In [36410]
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claim Married and 9 exempts put additional income in safe
Dec 16, 2015, 4:50 PM
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Interest bearing account and pay govt each year
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