Many payment services will offer an option to allow you to get your money sooner, but charge a fee that negates the benefit of doing so.
I filed my taxes last month, curious to see if there’s anyone at the IRS that hasn’t been fired and is still there to handle the incoming returns. It’s been almost a month, so the jury is still out.
I used TurboTax as I always do, and I was told that there would be a refund in my future. There were two options though; I could wait to get my refund as normal, or I could get my refund deposited 5 days sooner! For a fee, of course.
Meanwhile, I use PayPal to send and receive payments, and I had a notification saying that my money was ready to be transferred to my bank account. It would take 2-3 days to get there, but, I could get that money right away…if I paid a fee.
Elsewhere, I was doing some contracting work, and the clearinghouse that sends me my payments told me that a check was coming my way, but that if I wanted it today, I could just click the button and I would get my money immediately.
What do all of these have in common? They are enticements to get you your money faster if you pay a fee.
And as a rule, while this seems harmless, paying for early payment is something you never want to do. But fortunately, and more to the point, this is something that you never need to do.
If you think otherwise, read on.
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The marshmallow test
There’s a famous experiment that’s turned into a kind of folktale in pop psychology. It concerns children who are offered a choice between a small and immediate reward (a marshmallow) and two small rewards if they waited a certain period of time (two marshmallows).
And it turned out that those children who were willing to wait for their marshmallow would go on to have better outcomes in life, from SAT scores to other measures of health.
I honestly don’t know if the story is accurate or if the results are overblown. You can read the details here and decide for yourself.
Or as the great XKCD says:
But one thing I can say for certain is that those who are willing to wait a little bit longer for money that is rightly theirs will have more of it.
The cost of fast
Take this payment service of mine. The fee here was 1%, so a $2,000 payment would be $20 for the privilege of getting my money a few days earlier.
Or take PayPal. It will charge you 1.75% to get your money “in minutes”. So a $2,500 payment would put you out $43.75.
And then there’s TurboTax’s “5 Days Early” refund. TurboTax’s pricing here is a little opaque (they don’t appear to publish it anywhere that I could find, which in itself is suspect), but I was able to deduce that it at least some cases, the fee is 2% of your refund. So a $5,000 tax refund would cost you $100 to get it five days early.
Why is all this so terrible? Because this is your money! Why would you pay a fee to get what is rightly yours? All you’re doing is time-shifting the money. Are you that impatient to get it?
Remember the marshmallows. Those who wait will have more.
You don’t need it
“But Mike, I’m not impatient; I need that money to pay my bills and live on. I can’t wait five days.”
Now that is the real issue here. Luckily, it has a solution.
Most people have no idea what they spend. They just spend money until their back account is empty, and then they wait until they get paid again.
This is a disastrous strategy, and I don’t recommend it.
Instead, I recommend tracking your expenses, learning what you do, and then creating targets for your expenses based on your habits.“I’ll spend $500 on groceries, $400 on restaurants, $300 on fun stuff,” etc. You generally know what your income is, so you can plan your spending based on what you’re going to make, and make it add up.
Remember: Income = Bills + Expenses. If you spend only what you make, you won’t ever run out of money. And the easiest way to spend within your means is to keep track of it.
But what about running out of money in your account? Well that’s where “float” comes in. If you’re able to put a little bit of money into your account, then your account balance can dip below that temporarily as things in the month happen. But you won’t have to worry about running out of money, because of course, you’ll be tracking it.
You don’t need to pay to get your money early
I have a whole program on how to take control of your income which I’ve used with clients for years now. On top of having more money, my clients report increased confidence and reduced anxiety, which sounds pretty good to me.
But regardless, all of these things you can do on your own too, if you want. And when you do, you’ll find that you not only don’t need to get your money early, but it’ll seem baffling to you why you’d pay for the “privilege”.
After all, it’s your money, and it’ll be there in only a few days.
