Make your tax refund count: 4 best ways to use it


Tax time is upon us. You’ve filed your taxes, and now you’re just dreaming up what you’ll do when that tax refund finally comes into your bank account. Seventy-five percent of Americans get a tax refund. For many of us, this is an exciting time to get a hefty refund, but what should you do with it?

How people use their Tax Refund

Most of us want to blow it on a TV, a lawn mower, a beach vacation, you know – fun stuff. But is that really the best plan of action? What should you do with this “extra” money that you get once a year?

A Money Coach’s Perspective

As a Financial Coach, I get an insider’s look into people’s financial lives. There isn’t a cookie-cutter answer for how you should spend your tax refund. We all have a unique situation and financial goals. If you’d like personalized support and guidance in this process, talk with a Money Coach.

Think back to what you’ve done with your refund in the past. Did you use that money in a way that has helped you? Or are you treading in the financial waters and getting nowhere?

How to Spend Your Tax Refund

As a rule of thumb, here are a few things to consider BEFORE spending your tax refund.

1. Change your withholding

Right now, it may seem like a great deal of cash, but in reality, Uncle Sam has been keeping your money all year, and now he’s finally paying you back. The more of your paycheck you can keep per month (without owing) is ideal. That way you are in control of your earnings and can make that money work for you.

If you’re getting a hefty tax refund, consider speaking with your HR rep to change your withholding. Here’s an easy tax withholding estimator.

Personally, our goal is to get a $0 tax refund. Why? We would rather have more money in our pockets to put towards our goals and to invest. Our government puts our refund to work for them throughout the year. We trust our money management skills more than our government. You get my drift?

2. Are you prepared for an emergency?

Unexpected emergencies happen. If you’re not prepared for a financial emergency, you can be financially derailed. Relying on a credit card to pull you through is not a good solution. The interest builds up, you feel more financial pressure, and then you play catch-up hoping that another emergency doesn’t come up.

49% of Americans can’t pay for a $400 emergency. Let’s be honest, $400 is a pretty small emergency. That amount wouldn’t cover an ER visit, a home deductible, or a set of tires. We all need some cushion in our bank accounts for the unexpected.

Having an emergency fund is like setting yourself up with insurance. That way you don’t have to rely on debt (yeah to no accumulating interest!). An emergency fund also reduces your overall financial stress.

Emergencies are stressful as is, but when you don’t have money to pay for it, your anxiety level can go through the roof. When you know you have money set aside for the unexpected, you feel that reassurance that if something bad happens, you’ll be able to pay for it.

How to set up and emergency fund

If you don’t have an emergency fund set up, using your tax refund to fund it is ideal. I know it isn’t the most exciting way to use the money, but it will change your day-to-day financial stress levels.

We help our clients determine how much they need to have in their emergency fund. We do that by looking at their job situation, cost of living, family size, and comfort level. A good rule of thumb is to start off with one month of expenses and work towards 3–12 months. You don’t have to have a fully-funded emergency fund in a day. It takes time. And when you use it, refill it.

3. Do you have high interest debt?

Interest rates do not work in your favor with debt. Using your tax refund to pay off high-interest debt can be a wise option. But if you don’t have an emergency fund of any kind set up first, you’re likely to fall back on debt. If this is you, set up an emergency fund first, then start paying down that debt.

Having a plan to tackle your debt is key. It will give you the momentum to keep going. When James and I were paying down our mortgage, we would run the numbers and see how many months than years we were able to knock off. Seeing how much interest we saved was fuel to fire.

During that season of paying off our home, we had accountability, and a timeline. Our goal was to pay off our home before my 32nd birthday, and we did it 3 days early!!

How to pay off debt

Paying off debt can feel overwhelming if you don’t have a plan and a method to get rid of it. There are many methods to pay down debt. The key is to find out what works for you in the long run.

You also want to make sure that when you are paying extra towards debt that it is towards the principle. Most companies will put the extra towards future payments, which really slows down your momentum and ability to pay debt down quickly.

If you want help in this area, you’re in the right place. We’ve done this ourselves. We’re 100% debt free, and we’ve helped hundreds of people pay down their debt (the average is $25k). So if you’re feeling stuck and everything you’ve tried hasn’t worked, schedule a free Q&A session to find out how we can help you get out of debt.

4. Are you funding your goals?

Do you have things you know you should be saving for or want to be saving for but haven’t? Pretty much everyone will raise their virtual hand. One of our favorite things we do with our clients is setting up separate funds for their goals and upcoming life events.

I’m not a fan of budgeting; in fact, I’ve done a post all about why budgeting is such a challenge. My favorite part of going through our financial numbers is this: funding our goals. In financial terms, these are called sinking funds.

My husband James and I created over ten sub-savings accounts that we would fund monthly. We set up a baby fund 4 years before we had our first child, knowing we wanted to eventually have kids. We saved $5k in our baby fund which paid for our $3.5k out of pocket hospital bill. We made monthly car payments to ourselves, enabling us to buy a new vehicle with cash.

How to fund your financial goals

You can set up a fund for a new roof, a kitchen remodel, electric bikes, a boat, or whatever. If you have anything you know you want to be saving for like a cruise or a vacation to the Oregon Coast, start saving for it monthly. It’s exciting when you start to fund the things that are important to you. You’ll gain more confidence in your ability to handle money as well.

When you start funding the future, you’ll feel like a rock star. Imagine how good it would feel to be prepared? You’d finally be able to be proactive, not reactive. Your stress level would likely go way down.

We help our clients set up automations, so they don’t have to manually fund all their goals each month. The more we automate good financial behaviors, the better; then we’re able to be consistent without the extra effort.

What will you do with your tax refund?

Ultimately, you get to decide what you do with your tax refund. Just remember, this isn’t free money. You worked for it. You earned it. Whatever you decide to do with that money, ask yourself this: “Will my future self be happy with this decision?”

If you want to optimize your tax refund, so you can set yourself up for a better financial future, schedule a FREE Q&A Session. We’ll ask you some questions about your current money situation and help you gain clarity on your next steps. This truly is the best time to use your tax refund to propel you into a better financial future.

Written By Amberlee Rich

Amberlee is a Money Coach, content creator, podcaster, and avid reader who is passionate about intentional living. She's a recovering couponing addict and aims to help others break free from survival mode. With her husband, James, they're certified financial coaches and have been helping people experience joy with their money for over 15 years.

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