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How To Give Yourself An Immediate Pay Raise

Adjust your W-4 withholding and keep more of your own money!

As a gentleman was leaving one of my classes recently, he asked me to clarify something I had said. He wanted to make sure that he should take his $4,000 or $5,000 tax refund and pay off some debt.

I was absolutely floored by his question! This was $400-$500 that could have been in his pocket each and every month! A survey of my friends this week revealed one who was getting back $2,800 this year, and another who was getting back $3,300. 

Getting a huge tax refund means you are having too much money withheld from your paycheck every pay period. 

Many people do this as sort of a "forced" savings plan, and it doesn't make any sense. You're actually loaning the government your money, interest free. Each $1,200 that is refunded is an extra $100 per month that you could have used to pay down debt or invest for your retirement! 

Iíd venture to say that most people who receive large tax refunds could use this money every month to ease their debt burden, which frequently leads to late charges and higher interest rates.

Instead, they enjoy the feeling of getting that large check in the mail and deciding how to spend that sum of money. 

The ideal situation is to either owe, or get back, around $100. 

If you always get a big tax refund, you should adjust your allowances on your W-4 form. The more allowances you claim, the less money is withheld from each check for taxes.

It usually doesn't matter how many allowances you claim. As long as the government gets itís money, they really donít care how many allowances you claim. 

Complete the appropriate worksheets included on your W-4 form. These worksheets will help you determine the best number of withholding allowances based on your income, exemptions, adjustments, deductions, and tax credits.

They can help you calculate the right amount so you donít have too little or too much withheld. If you need help, simply ask your payroll administrator or an accountant. 

Stop getting those huge tax refund checks and keep your money working for you!

Leo J. Quinn, Jr. is a financial expert and educator. Visit him at www.leoquinn.com.

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