Driving Towards FIRE,  Investing In Retirement

Tax Refunds and How To Use It Wisely

Let’s Talk…Tax Refunds…

First of all, let me start by saying Taxes suck. Ok..listen, I really wanted a more in depth way of saying just how terrible taxes are but I also wanted to keep it simple. So Ipso Facto…they suck.

Every month & every quarter we diligently track money in & money out. Spreadsheets & receipt tracking. I wish I had a spreadsheet that showed how much time was spent doing this, but then that would take more time…ugh. Ok anyways…taxes.

Who has filed their taxes? Who is expecting a refund? Here’s a better question….what are your plans for that tax refund?

Did you know? 79% of taxpayers get refunds averaging $2,879..according to an 2019 article from Wall Street Journal. Additionally, 84% of of those who received a refund in 2019 used it on savings (50%) and paying down debt (34%). I’m surprised at those numbers, actually. I’d expect the number of “splurge expenses” to be higher, but that was ONLY 4%. Sadly, just 7% put more into retirement. The remaining uses it on everyday expenses.

Here’s a few recommendations:
1. If planning to save, put it into a high interest savings account and not a standard savings. Most High Interest accounts start at 1.5% and go up from there. Let your refund grow.
2. If you have the opportunity to pay OFF debt with what you get as a refund, DO IT. If the debt is higher than the refund, I’d put it into savings, use it as a emergency fund, or invest it.
3. Invest it. Add that to your retirement, 401k, IRAs, etc. The markets gained 20% or higher YTD last year. That refund would grow a good bit in one year. Plus, your future self will thank you.
4. Use it for what you NEED, and NOT what you WANT.
5. Figure out how much to pay in during the year so that you “break even” come tax time and give yourself more money on your paychecks each month throughout the year.

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