Plan How You’ll Spend Your Refund

Getting a refund on your taxes this year? Great, sure beats owing them. You’ve probably heard the advice not to spend your tax refund before it arrives. It falls into the same category as not counting your chickens before they’re hatched. But it’s a good idea to have a plan for when it gets here.

Get All Your Refund Money

Don’t forget that this is your money that you’re getting back. It’s not a gift from the government, what you’ve done by withholding is you’ve given the government money ahead of time so you wouldn’t have to worry about coming up with the amount you owe at tax time. And if you’re getting a refund, then you overestimated so that you wouldn’t have to worry about being short.

Refund anticipation loans are a bad idea unless you’re truly desperate. Otherwise, getting the money early is not worth the price. Would you give someone your money and then have a third-person give you part of it back and get all of it themselves?

If possible, especially if speed is an issue, opt get it through direct deposit as this will make it available much faster and save you the hassle of cashing your check. Double check your banking information before submitting your taxes because you want the refund to go to the right place.

If you get refund anticipation loans every year, have someone help you adjust your withholding. You won’t get as much of a refund (or any) but you also won’t be losing money you’ve earned every year…it’s like getting your refund spread out throughout the year.

Make a Plan for Every Dollar

Again, this is money that you’ve earned. This isn’t a bonus or a windfall, it’s part of your salary that you haven’t been able to get your hands on. So treat it like the rest of your money and make a budget.

There’s nothing wrong with using withholding as a kind of forced savings account. Just remember that it’s like getting money from a savings account. If you want it to be vacation savings, that’s great. Here are some other things to consider when planning:

• Do you have money put aside for emergencies? If you’re not having an emergency right now, then consider putting some in an emergency fund. Nobody avoids emergencies and you can’t plan for them–or they aren’t emergencies. It’s best to be prepared.
• Could you use a little more flex money each month? If you hadn’t had this money withheld, it would have been divided up between each month. So if your dating budget is being squished by your debt-repayment budget, then maybe you should divide the refund up for the coming year’s dating budget. Some might be surprised I didn’t say “put it toward debt” but getting out of debt is about improving quality of life.
• Are you paying off a debt? That said, paying off debt is also a great use for the money. It saves you money from the interest, delaying gratification but leading to an improvement in quality of life.
• Are there any charities you’ve been meaning to support? If you’re comfortable with living on your take-home pay and are already working on financial goals, consider giving away at least part of your refund. Put it in an account to give away or just do it all at once. Here’s a post about checking out charities’ effectiveness.

Whichever option you choose, make a plan for it. Want to designate $250 as “fun money”? Want to designate all of it as “fun money”? Great. Just have a plan.

If you don’t have a plan, your refund will probably feel too much like a gift or a bonus and just slip through your fingers. I enjoy money much more when I know where it’s going and planned for it to go there. Otherwise, there’s a feeling of vague discomfort, like I should have something to show for my spending.

Don’t spend your tax refund before it gets here. And don’t let it slip through your fingers. This is money that you earned–spend it, enjoy it, make it make your life better.

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