Lending Club Blog

Have the Government Help You With Saving

There are many ways for you to start saving your money; some work, most don’t. Especially if you come from a family and background where nobody saved and that was not an integral part of dealing with money. One way to force yourself into saving is by having the government help you with it. This tip might not be for everybody, but if you are having a hard time saving money, it might do the trick.

When signing up for a new job, you always fill out a bunch of papers and sign many dotted lines. One of the forms you fill out is a tax withholding form. This is where you enter your number of exceptions and indicate if you want extra money taken out of your paycheck, so that at the end of the year you will not have to owe money to the government.

By entering a bigger amount into this “extra withholding” section, your employer will take out that amount from your paycheck and send it to the IRS. Then next year, after submitting your taxes, you will receive a bigger refund. The extra amount that you chose to be withheld from your paycheck should be there from the entire year.

Take the refund check and forward it to whoever handles your savings or investments, such as companies like Schwab and ING Direct. You can also fund an account with a social lending site and lend it out to other people while you earn interest.

The downside of this savings method is that you will miss out on the interest that you might have earned during the year by saving or investing this money yourself. This is a decision that you will have to make: is it worth it for you to lose interest dollars to be able to have the money saved in one lump sum at the end of the year, or are you diligent enough to save it yourself on a regular basis? Look at your history and past actions and let them guide you, not what you think you will do.
Caution: Please review your previous tax returns and talk to your accountant to make sure that this method doesn’t have any negative consequences for your particular situation. (It shouldn’t, but having that OK is always good.)

Tuesday, August 26th, 2008 at 7:05 am

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