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Show Me the Money

Show Me the Money

Mar 11, 2019 | 4 min. read

Receiving a tax refund may feel like a windfall, but is it?

Millions of Americans count on receiving an annual tax refund, but the 2018 Tax Cuts and Jobs Act resulted in fewer overall tax refunds in 2019.

If you didn’t receive a refund, it may or may not mean that your taxes went up—it’s possible that you withheld less throughout the year. But while an incremental increase in your paycheck may have gone unnoticed, the absence of a chunk of money being sent to you in the form of a refund is sure to get your attention.

If you are eligible for a refund, however, don’t break out the champagne just yet. It’s important to remember your refund is really your own hard-earned money being returned to you, not a random lottery win. Psychologically, this is an important distinction.

If you view your refund as anything other than money that has been on loan to the government, your instinct may be to splurge on an impractical purchase or experience. This is human nature, so you’re not alone. Most people have experienced the exhilaration associated with a fun purchase—so much so that there’s a term for it: retail therapy. But before you treat yourself to designer shoes or a backyard Jacuzzi, take some time to consider uses for the money that may provide far more lasting satisfaction and far less buyer’s remorse.

  • Pay off debt. According to Experian, the average American owes over $4,000 in credit card debt, and interest rates on credit cards are notoriously high. If your credit cards are under control, tackle student loans next. The average student loan balance is over $37,000 at graduation—making a plan to knock it out can feel like a weight being lifted off your shoulders.
  • Establish or add to your emergency fund. Life is full of surprises, and not all of them are good. Cars break down, appliances break and loved ones incur medical expenses. Experts agree that you should have at least three months of living expenses set aside to stave off panic when things go wrong.
  • Tackle home repairs. If you’ve been putting off getting a leaky roof fixed or having maintenance performed on the air conditioning, this is a great time to do it.
  • Make an extra mortgage payment. Reducing the amount of your mortgage can save you interest and help you pay your home off faster. The key is to make sure your extra payment goes toward principal, not interest, so ask your mortgage lender for instructions.
  • Get your house in order. You can’t put a price on peace of mind. Less than half of American adults have essential documents such as a will, power of attorney, health care proxy and living will. Planning ahead doesn’t make you morbid—it makes you prepared.

Still not convinced? If you absolutely can’t stop yourself, set aside a small amount for a splurge, and use the rest to meet a long-term objective. Regardless, one thing you may not need to spend your refund on is financial advice, because First Command offers complimentary financial planning for active duty military. In addition to helping you stay on track, your Financial Advisor can give you customized suggestions for your refund based on your individual circumstances. 


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