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5 Things to Do With Your Income Tax Refund

This content is provided courtesy of USAA.

By Scott E. Halliwell, CFP, ChFC, CLU, CWS

Your refund is coming...Your refund is coming!

OK, so maybe stealing from Mr. Revere is a bit overdramatic when talking about a potential income tax refund. After all, my message won't change the future of a nation. I am, however, OK with borrowing a bit of his attention-grabbing magic because if you are receiving a tax refund, my refund-management message could literally change the future for you.

Old Habits Die Hard

Quite often, when someone learns they are about to become the recipient of a substantial sum of money (like a refund), the very next thoughts that run through their mind are images born on Madison Avenue. And equally as often, the next thought is, "I'm going to buy myself something nice!"

By now you are probably thinking, "Here we go. He's going to try to take the fun out of my plans for my money!" Well, not exactly. I too, have similar thoughts. But as a CERTIFIED FINANCIAL PLANNER professional, I have a few additional thoughts that I would like to share -- thoughts that hopefully can motivate you to buy yourself a future in addition to buying yourself something nice.

5 Things To Do With Your Refund

Here are some of my key ideas for what to do if you find yourself about to get a significant income tax refund:

  1. Buy yourself something nice! Strict disciplinary principles typically don't sit well with most people. So, telling you to take all of your money and be financially prudent with it probably won't help you much. I really do believe that for most people, treating themselves to something nice is a good strategy -- just don't overdo it! Pick a percentage to use this way (maybe 10-15%) and have some fun with it.
  2. Build or shore up your cash reserves. Do you ever feel like you're living paycheck to paycheck or that your cash reserves are always uncomfortably low? Well, getting an influx of cash is a great way to fix this. Typically, I recommend having an emergency fund of 3-6 months' worth of your committed expenses. Set this aside in a separate account from the one you use for your day-to-day finances and bill paying.
  3. Pay off consumer debt. If you are one of the millions of Americans with credit card debt, this could be a good opportunity to clean the slate (or at least part of it). If you have multiple cards and can't pay them all off, consider paying off the smaller balances first to give you a sense of accomplishment.
  4. Create cash pools for upcoming expenses. My family has many things on which we know we will spend money this year -- vacations, sports, gifts, travel, etc. If you have similar known expenses upcoming, why not set aside pools of cash specifically earmarked for these purposes? This way, your cash flow won't be as stretched when the time for the expense arrives, and you'll be more likely to stick to your planned spending amount. I literally set up separate savings accounts for such things.
  5. Jump-start a savings program. Do you have a savings goal you've been meaning to reach but just couldn't get excited about putting away a small amount of money each month? Dropping a lump sum into such a plan often makes it easier to get over the initial hurdle of getting started.
Facilitate Your Own Financial Security

If you're about to get a substantial income tax refund, I encourage you to make the most of the opportunity. Are you going to buy yourself something nice? Or are you going to buy yourself a future? Why not try a little bit of both?


This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional.

USAA Financial Planning Services is a service mark of USAA that refers to the financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Company in California, Lic. #OE36312), a registered investment adviser and insurance agency and its wholly owned subsidiary. Certified Financial Planner Board of Standards, Inc., owns the certification marks CFP? and CERTIFIED FINANCIAL PLANNER? in the U.S. which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

USAA means United Services Automobile Association and its insurance, banking, investment and other companies. Banks Member FDIC. Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers.

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