I saw something in 1980 that my mind could not comprehend.
Inserted inside an employee’s personnel file was a W-4 form which showed the number of withholding exemptions claimed by the employee. The number was 52.
This was the W-4 form completed by a well-paid employee in a VP or similar position.
Being 22 years old at the time, I couldn’t imagine this employee having 52 people living in his house. That’s what the number represented, right?
Today I know better. That employee was following the advice of his financial advisor who helped him maximize his wealth by keeping as much of his paycheck as possible.
My W-4 showed zero exemptions. I had no financial advisor, so my novice thinking was:
“Let the Internal Revenue Service collect as much money as it can from my check. Better yet, let them hold a lot of money. When I do my taxes, I’ll get a big refund. Whoopee!”
Sure, I received more than $1,000 as a refund, and in subsequent years, before starting my business, I remember my husband’s and my joint tax refund topping $3,000.
We took the best possible course of action with our money even though we weren’t financially savvy. A big refund meant we had more money to put into our savings account, the same account that would be re-taxed through any interest received from the bank.
Thinking back, I don’t scold myself for this practice. It’s all I knew, and my husband was happy to know that we didn’t have to write the I.R.S. a check when filing our taxes.
My view today about money is totally different. In fact, I place my view in the mature category especially due to the story I share in How I Handled a Tax Problem May Help You, Too.
No longer do I treat the I.R.S. as a bank that holds my cash tax free for a year. I don’t claim 52 exemptions, but I do work with an accountant and financial advisor to keep my money in my possession and write an as-small-as-possible check to the I.R.S. when taxes are filed.
It’s okay if you enjoy receiving hundreds or thousands of dollars as a tax refund. However, when you receive your money after filing in April, think about the discipline it takes to allow an agency to keep your cash, discipline that you can transfer into your own hands.
Consider what you can do with your money each time you receive a paycheck or business income. There are lots of options.
I’m not a financial advisor and am not commanding or insisting you do anything with your money outside of your comfort zone. I merely want to share my experience giving the I.R.S. an tax-free loan when they’ve neither requested nor earned it.
Your obvious discipline shows that you can be trusted with your money, trusted not to spend it on unnecessary, frivolous things. It can be handled by you in a way that builds your wealth month after month. That’s not possible if someone else is holding it.
I don’t know where Mr. 52 is now. He may be deceased, or perhaps he’s living on an island. I’m just thankful that his strategy opened my eyes to changing my thoughts about money. It only took me 34 years to understand.
What changes, after seeking proper financial guidance, are you willing to make to increase your wealth?