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How the 72-Hour Rule Can Help You Save Money

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Clock time deadline

How often do you make an impulse purchase, only to regret it the next day?

Journalist and money expert Carl Richards  came up with the “72-hour rule” to kick his habit of buying every book he wanted on Amazon, ending up with a pile of unread books.

Now, he says he lets a book sit in his shopping cart for at least 72 hours before hitting “buy,” and he’s saving money only buying books he will actually read. You can apply a similar practice to your spending habits.

Why wait 72 hours?

Our brains respond positively to instant gratification. It’s why so many of us find it difficult to save money or lose weight. We want the item or food now, and when there’s nothing stopping us, why wait?

You need the space between receiving the money and spending it to think. The shorter that space is, the less time you have to think and the more likely you are to spend the funds impulsively.

Tax refunds are a prime example of a time when it can be tricky to control your urge to spend. Tax refunds averaged $2,860 in 2016, according to the IRS. This year, a SunTrust survey found about 1 in 4 Americans already planned to spend their refund money on a large purchase before they even received the funds. That proportion rises to 36% among millennials and 40% among Gen-Xers, according to SunTrust.

“People often look at their tax refund as found money like lottery winnings or inheritance. The temptation to spend surprise money on something fun or frivolous is strong,” says Denver, Colo.-based Certified Financial Planner Kristi Sullivan.

You want to avoid doing that. Your tax refund isn’t lottery winnings or an inheritance. It’s your hard-earned money being returned to you with no interest gained.

That’s not great, considering the average citizen admits they can’t pull together $400 in case of an emergency.

James D. Kinney, a financial planner in Bridgewater, N.J., says “hitting the pause button on spending impulses gives the rational brain time to think” of more practical ways to use the money like getting out of debt, contributing to a college savings fund, or adding to your savings.

Although he acknowledges when you’re living paycheck to paycheck, it’s a little harder to resist a sudden — albeit predictable — boost to this month’s budget.

“People feel constrained by their paycheck all through the year, then suddenly this windfall of money gives them the ability to splurge. The temptation can be hard to resist,” says Kinney.

Here are a few ways you can manage the temptation, and the time.

Make your priorities clear

Once you know what your financial goals are — whether they are saving up for a new car or paying down student debt — the key is to look at every financial choice and determine whether or not it will help or hurt your progress toward that goal.

“A need that you haven’t already bought is rare. Wants are everywhere. Time to reflect might have you making a more mature decision with your money,” says Sullivan.

Do some soul searching to see where your financial priorities lie. You might find your need to pay off your credit card this month to avoid paying more in interest outweighs how badly you want that new gadget. Think about it.

Emergency fund and debt comes first

“Sit down and think about other pressing financial issues, and how you plan on paying for them,” says David Frisch, a Melville, N.Y.-based financial planner. He suggests you review bank statements, brokerage accounts, long-term goals, and other financial considerations, then give some thought to whether or not you’re on track to achieve them.

For example, if you realize you don’t have enough in your emergency fund to cover three to six months of expenses, you might decide to put the money there instead of spending it. Or, if your refund could completely pay off a high-interest debt like a credit card, you might decide to free yourself from the debt burden.

Treat yourself

Holding back on purchasing something you really want can be painful, but it doesn’t have to be complete torture. Sullivan suggests taking the edge off with a small reward for each day you wait. It’s a lot like crash dieting, which experts agree never works. If you deprive yourself of too many small pleasures for too long, you might see a donut one day (or maybe that new iPhone) and not just buy one but the whole dozen. But if you have a treat once in awhile, you might not be as likely to binge later.

Just make sure the reward you choose isn’t too expensive, and you should avoid getting into more debt. Your “reward” could serve as a break while you comb through your finances.

The takeaway

Take some time to think before spending whenever you receive unexpected income, and you might make better spending decisions. Maybe you need only 24 hours, instead of 72, or maybe you need a little longer to decide what to do with money, but the same lesson applies. If you’re considering a purchase that’s a “want” and not a “need,” think before you buy.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at [email protected]

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Articles, News

Why You Should Apply the 72-hour Rule to Your Tax Refund

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Why You Should Apply the 72-hour Rule to Your Tax Refund

Ka-ching! Your tax refund just hit your checking account. Time to apply the 72-hour rule.

Whether your refund is in the thousands or hundreds, the urge to spend the funds might instantly become overwhelming. Maybe you already had an idea of what you want to spend the money on and you’re all set to hand over your refund for it. Or, maybe the money means you finally have enough to make a large purchase you’d otherwise need to save for.

Whatever your reason, don’t spend your refund quite yet. If it’s not an immediate emergency (read: root canal, car accident, flood, etc.), let the cash burn a hole in your pocket for about 72 hours.

Journalist and money expert Carl Richards came up with the “72-hour rule” to kick his habit of buying every book he wanted on Amazon, ending up with a pile of unread books. Now, he says he lets a book sit in his shopping cart for at least 72 hours before hitting “buy,” and he’s saving money only buying books he will actually read. You can apply a similar practice to your spending habits.

Why wait 72 hours?

Our brains respond positively to instant gratification. It’s why so many of us find it difficult to save money or lose weight. We want the item or food now, and when there’s nothing stopping us, why wait?

You need the space between receiving the money and spending it to think. The shorter that space is, the less time you have to think and the more likely you are to spend the funds impulsively.

“People often look at their tax refund as found money like lottery winnings or inheritance. The temptation to spend surprise money on something fun or frivolous is strong,” says Denver, Colo.-based Certified Financial Planner Kristi Sullivan.

You want to avoid doing that. Your tax refund isn’t lottery winnings or an inheritance. It’s your hard-earned money being returned to you with no interest gained.

Tax refunds averaged $2,860 in 2016, according to the IRS. This year, a SunTrust survey found about 1 in 4 Americans already planned to spend their refund money on a large purchase before they even received the funds. That proportion rises to 36% among millennials and 40% among Gen-Xers, according to SunTrust.

That’s no bueno, considering the average citizen admits they can’t pull together $400 in case of an emergency.

James Kinney, a certified financial planner based in Bridgewater Township, N.J., says “hitting the pause button on spending impulses gives the rational brain time to think” of more practical ways to use the money like getting out of debt, contributing to a college savings fund, or adding to your savings.

Although he acknowledges when you’re living paycheck to paycheck, it’s a little harder to resist a sudden — albeit predictable — boost to this month’s budget.

“People feel constrained by their paycheck all through the year, then suddenly this windfall of money gives them the ability to splurge. The temptation can be hard to resist,” says Kinney.

Here are a few ways you can manage the temptation, and the time.

While you wait…

Weigh your wants vs. needs

The waiting period is supposed to help you to spend your tax refund responsibly, right? Consider all of the expenses the money could go toward. Should you buy the new iPad or pay off your credit card? How about that car loan? Time to weigh your options.

Sullivan says that means you should pit your “wants” against your “needs.”

“A need that you haven’t already bought is rare. Wants are everywhere. Time to reflect might have you making a more mature decision with your money,” says Sullivan.

Do some soul searching to see where your financial priorities lie. You might find your need to pay off your credit card this month to avoid paying more in interest outweighs how badly you want that new gadget. Think about it.

Review your finances

Since your tax refund might consume your every thought for three days, you might as well use the time to think about your overall financial picture.

“Sit down and think about other pressing financial issues, and how you plan on paying for them,” says David Frisch, a Melville, N.Y.-based financial planner. He suggests you review bank statements, brokerage accounts, long-term goals, and other financial considerations, then give some thought to whether or not you’re on track to achieve them.

For example, if you realize you don’t have enough in your emergency fund to cover three to six months of expenses, you might decide to put the money there instead of spending it. Or, if your refund could completely pay off a high-interest debt like a credit card, you might decide to free yourself from the debt burden.

Make sure you don’t get a huge refund every year

Most Americans receive a refund because the government withheld too much in taxes. The government uses information you gave them to decide how much of your paycheck to withhold each pay period.

“Changing your withholding will give you more of your money during the year so that you will not get a large refund that you might be tempted to spend frivolously,” says Alfred Giovetti, president of the National Society of Accountants.

You can change information on your withholding forms on your own if you’d like. Use this IRS calculator to determine your proper withholding and figure out what information you need to correct on your W-4 form. Then, contact your employer’s human resources department to turn in a new W-4 with the correct information.

If you’d rather have some assistance, you can contact a professional. Work with your accountant or financial adviser to change information on your W-4 and its equivalent withholding form for the state in which you reside.

“Plan with a good tax accountant to get a small refund or a small liability by changing your withholding, so that you do not rely on the refund as ‘mad money,’” says Giovetti.

Treat yourself

We admit, waiting sucks, but it doesn’t have to be complete torture. Sullivan suggests taking the edge off with a small reward for each day you wait.

“It could be an ice cream cone, a long phone chat with a friend, an hour reading a trashy novel, or whatever makes you happy,” she says.

Just make sure the reward you choose isn’t too expensive, and you should avoid getting into more debt. Your “reward” could serve as a break while you comb through your finances.

The takeaway

Take some time to think before spending whenever you receive unexpected income, and you might make better spending decisions. Maybe you need only 24 hours, instead of 72, or maybe you need a little longer to decide what to do with money, but the same lesson applies. If you’re considering a purchase that’s a “want” and not a “need,” think before you buy.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at [email protected]

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News

How the New Federal Overtime Rule Died — And What it Means for Workers

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

iStock

A new federal overtime rule had many American companies scrambling at this time last year. The federal regulation, which was set to pass on Dec. 1, 2016, would have required businesses to begin paying overtime wages (1.5 times an employee’s hourly rate) to any full-time salaried employee earning less than $47,476.

This threshold previously had been more than twice as low, with companies owing overtime pay to employees with yearly salaries under $23,660. Then, after many employers had already responded to the regulation by offering raises and adjusting exemption statuses, a federal judge in late 2016 temporarily blocked the rule, halting its effects nationwide.

Less than a month ago, that same judge permanently struck down the Obama-era regulation, leaving the state of overtime pay in limbo. The increased threshold would have affected 4.2 million workers, according to the Department of Labor, so it’s clear this decision will have wide-reaching effects.

Here’s a breakdown of what we know.

Does the rule still stand a chance?

The short answer is no. While the federal government might have tried to fight the court’s ruling, that doesn’t seem to be the Trump administration’s intention.

A week after Judge Amos Mazzant — an Obama appointee on the U.S. District Court for the Eastern District of Texas —struck down the overtime rule, the Department of Justice announced that it was withdrawing its appeal, essentially agreeing to move on from the issue.

The Department of Labor has done the same. The agency reopened public comment on overtime rules and exemption requirements back in July, with the response period ending on Sept. 25. Suzanne Boy, an employment lawyer with the firm Henderson, Franklin, Starnes & Holt, based in Fort Myers, Florida, says this is an indication that the Obama rule has been defeated.

“For all intents and purposes, it’s dead,” she says.

What’s next for businesses and their employees

There were several ways in which employers responded to the rule. Some gave raises, but others cut hours. Some companies that had switched salaried employees to hourly pay to make them exempt from overtime eligibility changed them back, Boy says.

“I have actually not heard of any client that has taken a raise away as a result of this change,” she says.

Christa Hoskins, a 26-year-old graphic designer in Fort Myers, was given a $10,000 pay bump last year, partially due to the new overtime rule. She tells MagnifyMoney her employers are letting her keep the bump, even though the regulation was struck down.

“I received last year’s pay raise due to this rule possibly coming into play since my work anniversary so happened to be around the same time,” Hoskins says.

Boy says keeping the original $23,660 threshold could help some employees in the long run, because the proposed rule change would have forced many companies to cut costs at the expense of their lowest-earning workers. For example, many employees earning thousands of dollars under what would have been the new $47,476 threshold — such as $30,000 per year — might not have received raises. Instead, they could have seen their hours scaled back or their pay structures altered to help employers circumvent the new overtime policy.

“I think that it would not have been the saving grace that it was intended to be,” Boy says. “I think a lot of people wouldn’t have obtained the big raise that the rule was touted to be.”

The fact that the Department of Labor is asking for public comments means another new rule could be on the way, with the agency likely taking at least a few weeks to analyze and consider the responses.

It’s tough to judge what a new regulation would look like. According to a statement made by Labor Secretary Alexander Acosta earlier this year, it seems possible the Trump administration could place the overtime threshold somewhere around $30,000. This figure would essentially  take the previous amount of $23,660 and adjust for inflation.

Some people are concerned it isn’t enough. Steve Zieff, a San Francisco-based employment attorney with Rudy, Exelrod, Zieff & Lowe, says he thought the Obama administration’s threshold, while not necessarily high enough, was likely better than a potential new rule.

“I think even the current Department of Labor recognizes that the salary level is way too low,” says Zieff, who specializes in overtime pay for white-collar employees. “But I’m fearful they’re not going to raise it to a meaningful level.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Dillon Thompson
Dillon Thompson |

Dillon Thompson is a writer at MagnifyMoney. You can email Dillon here