Closing Tax Notes – Avoid “Tax Refund Loans” !!!

If you live or work near the inner-city, or even low-income areas, you may be quite familiar with the tax refund loan services. Are they cheating you?

It’s almost tax-refund time. If you’ve been careful this year, your refund will most likely be pretty small. My refund this year is less than $300, last year it was upwards of $2000 until I [saw the light].

However, if you are expecting a significant refund this year you have options to get your money. You can e-file with the IRS directly, and receive your refund in a decent amount of time (usually within a few days). Some however, have opted to get “instant refunds” via Tax Refund Loan services (TRLs) Don’t get me wrong—I think these companies do provide adequate tax-prep services, especially if you have a home or business (I don’t). However, if you’re due a refund, its best that you e-file. Here’s why.

Interest Rates – Trust me, the Credit Card Cliques may charge absurd interest on their loans, but they can’t hold a candle to the immense rates charged by the TRLs. Because the rates charged are not “interest rates” per se, but instead they charge a $30-$80 “service fee” followed by a $40 filing fee—which, if annualized, add up to astronomical rates that far exceed state usury laws (which these tax refund loan companies circumvent). The interest rate is charged as a “10-day loan” so it doesn’t seem as if you’re paying a lot of money. Rates can climb to over 100% or more.

No, I didn’t miss any decimals.

These are actual interest rates charged by actual companies. What’s troubling is that these rates are paid by taxpayers who tend to live in low-income areas, where most of these tax centers are concentrated. If you see one in your area, avoid applying for your refund unless you have no other choice. Some people do not have bank accounts (for example). However, the government has passed laws to allow you to file your taxes for a nominal rate (and depending on your tax form’s complexity, virtually free!)

For more information on this potential rip-off, read this bankrate.com article [here]

Carnival of Finance!

Hi guys,

I thought this week I start mixing in my own articles with some of the best writers I've found on the web. These are writers who pretty much do the same thing I do, but they are a bit more seasoned at it than I. So I present to you my first venture into a PF Blog Carnival, which is a collection of personal financial writers insights on everyday finance and investing. Give them a look.


Free Money Finance writes about how getting ahead in your 20s and 30s isn't as hard as the Media wants to make it seem.


FMF also provides as article about the Value of that Advanced Degree.


Finally, because it's never to late to get in the game, check out this USA Today Article" about the growing competition of the Online Savings Banks.

Next week, or later this week, we'll pull together another interesting article for you all. Take Care!

Tax Refunds - Revisited

Hi readers,

My apologies for not posting an article last week, but hobbies of course take a second fiddle when the work you get paid to do demands more of your time. (Add that to the fact that Doubletree actually charges for internet access...)

Anywho, almost one year ago I posted this article about Tax Refunds. The same story still holds true today. Take a look and leave comments!

http://wealthweekly.blogspot.com/2006/02/got-huge-tax-refund-shame-on-you.html

Take Care. See you next week.

--Charles

From YCA: Common Personal Finance Myths (Excerpt)

YCA: Personal Finance Myths (Excerpt) – Post week of Jan 22

Some of the following PF Myths appear on the Your Credit Advisor blog page. He has a set of 25 Myths, all of them very good. I've chosen a few here to elaborate on because he hits on some common myths we all do every day. Hat tip again to the Your Credit Advisor blog, which you can access here[].

Those with obvious material wealth must be rich.
Experience suggests we humans get jealous or resentful for so many reasons, and witnessing someone's material wealth is often one of them. But don't be so sure that the neighbor with all the cool ATVs, skidoos, swimming pool, and latest car is actually wealthy (has liquid assets), or even happy. He/She could be deep in debt to maintain the facade.

Of course jealousy is an unfortunate by-product of success. And at some time in our lives, we have been on both ends of said success. We usually like to acquire as many (or more) possessions than The Folks Next Door or to improve your status among the opposite sex. In the end, it's a zero-sum game. Spend wisely and independently of your friends and neighbors, because you really don't know how they got what they have.

Working hard and saving your money makes you rich.
These are components of becoming wealthy, but not by themselves sufficient. Saving is linear; investing increases your wealth. Jesus said to "multiply talents." This has been interpreted to mean that you should multiply your wealth. Do more than save. Start by having a small sum automatically deducted from your paycheck each pay period and deposited into a 401(K) or Roth IRA.

As much as you see me play it up on this site, your ING (or other online savings accounts) aren't going to get you through to the end. Savings interest of 4.5% is not sufficient to retire on unless you're putting away $50,000/yr until you retire. So as mentioned above, sock away as much as you can to your company's retirement plan—even if they offer a pension.

Earning lots of money makes you rich.
Only if you actually save and invest it. If you spend it all, like some high-earning individuals, then you are not rich. Wealth is defined by liquid assets and investments, not how much you earn from a job…

Pretty obvious, but many "average Americans" don't realize it. I saw an article a few weeks back of a family earning 150,000/yr and was "scraping by" trying to make ends meet. Now before you turn up your nose and cue the violins, understand that this may be an "extreme case" of sorts. However, many two-income households could easily move into this bracket and because of the MPC factor (which pretty much states that you will spend the money you earn no matter how much you earn) you can easily find yourself in a similar situation.