Four Ways NOT to Blow Your Tax Refund
April 17th, 2017
Congratulations! You received your tax refund. Want to know how not to blow it? Use it for these four things instead of whatever your reptilian brain tells you to do with it.
Pay Off Debt
One of the smartest things you can do with a big influx of cash (like your tax refund) is to use it to make a big payment toward your outstanding debt, especially debt that isn’t associated with something tangible (like a mortgage). What are we really talking about? Credit card debt. If you have it, you want to work towards getting rid of it, and using a big cash windfall to pay off a big chunk of it is a very smart choice. (Plus it prevents you from accidentally spending your windfall—and then some—and adding to your credit card debt.)
Want a quick example? Paying off $1,000 of credit card debt that you are carrying at 18% interest will save you $180 in interest payments this year. That is totally worth sacrificing a night out with friends.
Build a Reserve
If paying off your debt isn’t part of your strategy, using this influx of cash to build up (or add to) your emergency reserve fund is a great alternative. Remember, your emergency reserve fund (or a more colorfully named version of the fund) exists for you to draw upon in emergencies instead of using your credit card. It’s kind of like your own insurance policy against life. Because as well all know, life happens, often in unexpected ways. Some of those ways are delightful, and others cost a lot of money. Having an emergency reserve fund ensures life’s unexpected twists and turns won’t entirely derail your creative goals.
Invest in Yourself
If your reserve is in good shape, think about using the funds to invest in yourself and your creativity. Would taking a class help your marketability? Would attending a special event help you foster connections to grow your business? Would funding your own sabbatical help your creative practice?
Think about something you have really wanted to do for your business, but haven’t (probably because of lack of time or resources). If you can use your recent refund to support those goals, it’s a great way to invest in yourself without using current revenue to do it.
But there’s a catch here: You must be deliberate and intentional about your plan. It isn’t enough to say, “If I go to this event, all my problems will be solved!” Simply going to the event probably isn’t enough. You must (1) go to the event, (2) proactively participate in the event, with a clear goal of meeting a certain number of people or fostering a certain number of relationships, and (3) follow-up after the event to ensure your goals were met (and will continue to be met).
Using your tax refund to invest in yourself can be great… But only if you are willing to put the work in to invest in yourself as well.
Support a Cause
Lastly, using a portion of your refund to invest in a cause you care about is a great choice as well. Not only will this help your tax return next year (assuming you itemize your deductions and give to a tax-exempt entity), but such action prompts an immediate sense of euphoria for supporting causes that are near and dear to our hearts (and our creative practices). You’ve gotten a windfall, why not provide a windfall for someone else?
Now is a great time to take advantage of those excess funds to invest in yourself by increasing your own financial mindfulness. Book a time to chat about your own goals and financial health.