What to Do With Your Tax RefundKathleen Celmins
Did you get a tax refund this year? Awesome.
It’s the end of April. Where is your tax refund?
Did you spend it?
Did you save it?
Did you treat it like found money?
Well, it might be too late to tell you this, but that money? The money you got back from the IRS?
It’s not found money, and it shouldn’t be treated as such. What you should have done with your refund was put it toward your savings goals.
How does your IRA look? Do you have enough in it?
That’s what you do with found money. You sock it away. You think about your future self, and you send it to her.
Don’t get new shoes.
Don’t go to the mall.
Boost your savings!
One of my friends always gets a big refund and uses it to boost his retirement savings. So, in effect, he doesn’t have to think about contributing to his IRA until after he gets his tax refund. If his tax refund is less than the maximum amount he’s allowed to contribute (which is $5500 this year) he can divide the balance and max it out by the end of the year.
The Myth of Found Money
Let’s say you’re walking down the street, and you happen to look down on the sidewalk. Hey, $20! Awesome! It’s happened to me before, and it’s great. I feel like the kid in the Little Rascals. You know? “I got a dollar, I got a dollar, I got a dollar hey hey hey hey!” In the movie, he immediately exchanges the dollar for a pickle and changes his tune. “I got a pickle, I got a pickle, I got a pickle hey hey hey hey!”
Unfortunately, your brain goes through the same process whether you’ve found a dollar, twenty dollars, or, in the case of the tax refund, a thousand dollars or more.
“Wow, 3800 big ones back from Uncle Sam, eh? Well, I was thinking about upgrading my television … ” and so it goes.
But, if you can resist that temptation, you’ll do yourself not one but two favors: you’ll have more money on hand, and you won’t scratch the consumption itch. You know the one. The more things you have, the more things you want, and if you start upgrading one thing, the rest of your things look dingy by comparison. Don’t fall down that rabbit hole. Get ahead. Expand your savings. You’ll be glad you did.
Image by cohdra