Putting Your Tax Refund to Work

Were you among the individuals who received a tax refund this year? The distance between gathering your personal tax prep resources and receiving a refund can feel daunting. And then there’s the question of how to spend it wisely.

Many people intend to use their refund as a “forced savings plan” (essentially withholding extra taxes on purpose so that they get a larger refund at the end of the year, instead of being tempted to spend it during the year). However, roughly half of taxpayers who file their tax returns early end up using their funds to cover things like rent, food and utilities – catching up on expenses, rather than putting money away for savings.

How you plan for your taxes and what you do with your refund can give you a boost in your overall financial health. On the flip side, if you don’t receive the refund you expected, or if you find yourself owing taxes, it can cause a lot of stress. Our financial counselors offer a few tips for putting your tax return to work for your financial health.

If you didn’t have a specific plan for the funds but typically depend on them for breathing room or extra cash, take a step back and work to get a clear picture of your financial situation. A great place to start is a budgeting worksheet to track your income and expenses, which can help highlight the areas you may need to make adjustments. Our financial wellness experts at GreenPath, also provide free financial counseling and can assist you with setting your budget and figuring out next steps based on your individual situation.

If your plan for your tax return was to catch up on past-due bills, consider how you still might be able to address the issue. See if you can trim expenses in another area to free up money so that you can get current on your bills, and open a dialogue with your lender/creditor. They may be willing to consider your situation and find flexible solutions for temporary relief or even permanent refinancing options to help the debt fit better into your budget.

Getting ahead of a problem you are anticipating is key. You may be surprised at how willing a lender will be to work with you.

If you did get a refund, it can be an extra boost on your journey to financial health.

Often, addressing highest-interest debt is the first step. By paying off debts faster, you save money on interest, and as you pay it off, you free up more money to devote to savings. If you’re all caught up on debt, a great next step is to build an emergency fund that will protect you if you have an unexpected loss of income or unplanned expense.

As you explore personal tax prep resources, get connected with GreenPath for free financial coaching. We help people take a look at their whole financial picture and make a spending plan to achieve their goals.