3 Best Things To Do With Your Tax Refund (2024)

The first time Megan and I sat down with our financial advisor will forever be etched in my memory.

We were 22 & oh-so-eager to develop a grown-up financial plan for our future.

I had visions of saving for retirement, giving generously to our church, and buying all the “much needed” stuff for our new house.

You know, like “man-chairs” and gas grills and 2 am infomercial knives. Which, for the record, we still have those and they were a fantastic purchase…Megan!

After surveying our entire financial situation, our friendly advisor looked us square in the eye and broke the news nobody wants to hear:

“You don’t have enough money to live the life you’re currently living.”

Two 22-year-olds have never felt so small.

Between a new mortgage, two leased cars, two student loans, credit card debt, and one too many long walks through the aisles of Target, we had nothing in savings.

With a starter youth pastor salary and a starter loan processor salary, (yep my sweet creative wife did that for a season) we were in way over our heads.

It was at that point our financial advisor gave us the best advice we could’ve ever received.

He said, “People don’t plan to fail they fail to plan.”

Revolutionary.

I mean, I now realize that he stole it from this guy.

But at the time, revolutionary. Still, it would be a few more years of doing stupid stuff with money before we realized the necessity of a strategic plan for our money each month. A strategic plan that included 3 things:

Spending. Saving. Giving.

For you and I to live the full, well-rounded, meaningful life we all desire, managing our finances wisely has to be a KEY factor.

Proverbs 11:24-26

24The world of the generous gets larger and larger;
the world of the stingy gets smaller and smaller.

25The one who blesses others is abundantly blessed;
those who help others are helped.

Around this time of year, you’re most likely about to receive a tax refund. And although it might seem tempting to book that dream vacation, buy a new car, or go on a serious shopping spree, you have to first assess where you are financially.

For some who have been disciplined, you could be in the perfect position to spend all of it on something fun for yourself. Cool. Enjoy. You’ve worked hard and some money should be fun money.

For others, dealing with consumer debt, student loans, or car loans, future you will thank today you for buckling down and throwing some serious money at those debts.

Still, others have been so blessed in life you may want to consider giving it to someone in need, giving to your church, or giving to another great non-profit organization *cough* like ours *cough* (NoSmallLife.me/donate). Shameless plug. BUT, we are doing some cool things. Check out what we do here & here.

Listen, I know this is a sensitive topic, but guys, the Bible talks SO MUCH about managing money. And what we often fail to realize is if you devise a smart plan which includes saving, spending, and giving, you will be able to win with money! Even if you or no one in your family has in the past!

And long term, you’ll be able to create a less stressful life for yourself, even if you don’t make a ton of the dollars. Sound good?

So what does a do-able financial plan that includes spending, saving, and giving actually look like for the real person? Check it out:

Spending

Based on advice from my financial advisor/long-time friend Steve, and this book, I believe you have the green light to spend your tax refund IF you are in the following financial situation:

  1. You have no debt other than your mortgage. This includes auto loans, student loans, credit cards, and that “interest-free-12-month-same-as cash-loan” you got at Home Depot. They get ‘cha, don’t they?
  2. You have a 3-6 month emergency fund in your savings account. Your Roth IRA or 401K don’t count.
  3. You have a 15-year-fixed rate mortgage that doesn’t exceed more than 25 percent of your monthly take-home pay.

Ok, ok before you throw your phone at me, keep reading.

I know it’s WAY more fun to spend your money on memories or things, but the freedom you’re craving will come when you start attacking these debts.

Where do you start?

List your debts smallest to largest regardless of interest rate (other than your mortgage) and start paying them off in that order, smallest to largest.

Each time you pay one off, you feel lighter. You gain momentum. Believe it or not, and maybe this is my “nerd” showing, paying off debt can be fun! I’ll never forget when I paid off my student loan and then my last car payment. Having no debt other than my mortgage felt so amazing! I felt so free!

If that’s your financial position, you have been working your tail off friend. Go spend a little and have some fun. Create that memory. Take that trip, debt free.

And If you’re not yet in that position, you’ll get there. Let’s just place that dream trip on the back burner for now and use it as motivation to pay off debt faster.

Saving

If you have all of your debt (other than your mortgage) paid off, but nothing in your reserves in case of emergency, this year’s refund is for saving. Joe average American pays for emergencies on a credit card because he didn’t put any money away in case of emergency.

Putting a grand on your credit card when your car breaks down or your washing machine takes a dive is annoying and costs you money in interest if you can’t pay it off at the end of the month.

A few months back our stove and dishwasher decided to stop working the same week. They were in cahoots. Thankfully, because we had an emergency fund, we were able to pay cash and replace both of them. It was a bit of a nuisance and I hated spending that much money at one time, BUT the point is, we had it. We replaced them. A few years ago we wouldn’t have been able to do that.

(SIDE NOTE: We’ve actually cut up all of our credit cards just so we couldn’t default to them on such “emergency occasions” and I can’t tell you how freeing it is.)

It may also be a good time to save this money if you have nothing saved for retirement. My advisor had Megan and I open a Roth IRA and invest in good growth stock mutual funds that had a strong track record for more than 10 years. We invest solely in mutual funds. However, we didn’t open that Roth IRA until our emergency fund was fully funded. If you’re eager to start investing but don’t know where to start, visit Daveramsey.com and click on ELP. (not a paid sponsor, just a huge fan 😉 )

Giving

There are 3 scenarios that I foresee where people should give some or all of their tax refund away.

1. You are currently not tithing or giving at all. Even if you are in debt, giving some of your money away each month will do 2 things:

-keep you from becoming greedy

-allow you to leave a legacy that can transform lives

2. You are debt free. Sometimes we give out of a need for approval and to keep up appearances even though we are not in a position to do so. Don’t do that to yourself. The Bible says that,

“the borrower is slave to the lender.” Prov 22:7

Get yourself out of debt and then you will be able to give so much more! If you are debt free and have an abundance, you will find so much joy in giving if you aren’t already doing so. Try it!

3. God is leading you to give.

When Meg and I finally paid off our cars and started saving our emergency fund, we no sooner paid it off when we felt “that nudge” from the Lord to give away our car to someone we met in need of transportation. Now, my car was nothing fancy, but it was mine, and it was paid off. But ironically, saying that “yes” to the Lord was a really easy decision. We followed God’s prompting even though we were not in the best financial position to do so. And we were and are so glad we did! IT was exhilarating, even if we did have to walk home after giving it away.

Many times we try to fill the void in our lives through buying stuff and going on fancy vacations, but the reality is, giving is so much more fun.

“it is better to give than to receive.” Acts 20:35

When we take our eyes off ourselves and give to others in need, our world gets bigger and our hearts and lives begin to change. “Give” (see what I did there) it a try. I can almost guarantee you’ll be hooked.

So there you have it. 3 things you can do with that golden ticket of a tax refund and truly, with money in general. Don’t allow debt to make your life feel small. You are the boss of your money. The effort is worth the reward to:

spend it, save it, or give it away.

Which one of the three are you going to do with your tax refund this year?

Until next time,

Chris

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3 Best Things To Do With Your Tax Refund (2024)

FAQs

What should I use my tax refund on? ›

Make a Payment on Your Debt

Another option for using your tax refund is putting it toward paying off your debts. If you have debt from school loans, credit cards, or other sources, creating and sticking to a payment plan is key to maintaining your budget and avoiding accrued interest on your current account balances.

How can I get the most money from my tax refund? ›

4 ways to increase your tax refund come tax time
  1. Consider your filing status. Believe it or not, your filing status can significantly impact your tax liability. ...
  2. Explore tax credits. Tax credits are a valuable source of tax savings. ...
  3. Make use of tax deductions. ...
  4. Take year-end tax moves.

How can I legally maximize my tax refund? ›

Here are four simple ways to get a bigger tax refund according to the experts we spoke to.
  1. Contribute more to your retirement and health savings accounts.
  2. Choose the right deduction and filing strategy.
  3. Donate to charity.
  4. Be organized and thorough.
Mar 4, 2024

What are two ways you can use your tax refund wisely? ›

How to Use Your Tax Refund Wisely
  • Use Your Tax Refund for Your Emergency Fund. The most prudent use of your tax refund is to save it in order to build up your emergency fund. ...
  • Pay Down Your Debt With Your Tax Refund. ...
  • Using Your Tax Refund for Retirement. ...
  • Contribute to a College Fund.

What not to do with a tax refund? ›

7 Ways to Spend Your Tax Refund That You Should Avoid
  • Unneeded Material Things.
  • Casinos.
  • Don't Put It in Your Checking Account.
  • Don't Use It on a Car You Can't Afford.
  • Refund Advance Loans.
  • Paying Off Credit Cards You'll Max Out Again.
  • Excessively Expensive Vacations.
  • Tips for Using Your Refund Wisely.
Mar 30, 2022

How to get a $10,000 tax refund? ›

How do I get a 10,000 tax refund? You could end up with a $10,000 tax refund if you've paid significantly more tax payments than you owe at the end of the year.

What's the biggest tax refund ever? ›

Ramon Christopher Blanchett, of Tampa, Florida, and self-described freelancer, managed to scoop up a $980,000 tax refund after submitting his self-prepared 2016 tax return. He also allegedly claimed that he earned a total of $18,497 in wages — and that he had withheld $1 million in income taxes, according to a Jan.

How to get $7000 tax refund? ›

Requirements to receive up to $7,000 for the Earned Income Tax Credit refund (EITC)
  1. Have worked and earned income under $63,398.
  2. Have investment income below $11,000 in the tax year 2023.
  3. Have a valid Social Security number by the due date of your 2023 return (including extensions)
Apr 12, 2024

How are people getting 30k back on taxes? ›

The Department of Community Services and Development encourages Californians earning under $30,000 a year to file their taxes to claim the California Earned Income Tax Credit (CalEITC), a cash-back tax credit, and receive a larger tax refund.

Is it better to claim 1 or 0 on your taxes? ›

Claiming 1 on your tax return reduces withholdings with each paycheck, which means you make more money on a week-to-week basis. When you claim 0 allowances, the IRS withholds more money each paycheck but you get a larger tax return.

What is the average tax return for a single person making $60,000? ›

If you make $60,000 a year living in the region of California, USA, you will be taxed $13,653. That means that your net pay will be $46,347 per year, or $3,862 per month.

How can I adjust my taxes to get more money? ›

For federal tax withholding: Submit a new Form W-4 to your employer if you want to change the withholding from your regular pay. Complete Form W-4P to change the amount withheld from pension, annuity, and IRA payments.

How can I get more money out of my tax return? ›

The amount of your tax refund depends on several factors including filing status, deductions and credits. Itemizing tax deductions and claiming lesser-known credits are among the ways to boost your refund. Tax deductible contributions can be made to traditional IRAs and health savings accounts up until tax day.

How do I get a good tax refund? ›

Here are some actions you can take that can help you get the most back on taxes:
  1. Itemize your deductions. ...
  2. Contribute to tax-advantaged accounts. ...
  3. Ensure you are claiming the right credits. ...
  4. Adjust your filing status.
Feb 6, 2024

What is the 50 30 20 rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

Should you spend your tax refund? ›

But they really are part of your earnings, the experts said, and they advise you to plan accordingly. "If you were going to spend all your raise, then that's probably what you should do with your tax refund. If you were going to put some more in your 401(k) or some kind of savings, then that's what you should do."

What can I use on my tax return? ›

You can deduct these expenses whether you take the standard deduction or itemize:
  • Alimony payments.
  • Business use of your car.
  • Business use of your home.
  • Money you put in an IRA.
  • Money you put in health savings accounts.
  • Penalties on early withdrawals from savings.
  • Student loan interest.
  • Teacher expenses.

What do you use most that your tax dollars pay for? ›

Approximately 62% of all government expenditure goes directly to “mandatory” spending, social programs automatically funded without periodic congressional approval. That would be approximately $8,800 of your tax returns, distributed like this: $3,000 for Social Security. $2,000 for Medicare.

Should I include tax refund as income? ›

If you did not itemize your deductions in the previous year, do not include the refund in income. If you deducted the taxes in the previous year, include all or part of the refund in the year you receive the refund. This information is found in Publication 525, Taxable and Nontaxable Income.

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