A Smart Mama’s Guide to Tax Refunds: Make Your Money Work for You


Every single year for the past fourteen years, my husband and I have owed money on our taxes. Sometimes a little, sometimes a lot, but always owed. This year, thanks to opening our own business and a few changes in tax laws, we got our first ever refund. To say that we were excited was an understatement. I actually hugged my accountant, who I have met only twice. It was a little uncomfortable for both of us. 

I’ll admit, the temptation was there to blow our “free money” on something super fun and frivolous – a new TV, iPads for the kids, a weekend in Vegas, etc. One look at our checking account made us come to our senses fairly quickly. Since the money was burning a hole in our pocket, my husband and I agreed that each of us would take a small amount ($100 or less) to spend on ourselves. I chose a high thread count sheet set; he picked out a new golf driver. After that, we each researched the best ways to spend our tax refund and narrowed it down to a few choices.

If you too are receiving a refund this year, consider the following smart financial moves:

  1. Catch up on bills – We always pay our mortgage, utilities, and car payments on time, but we had a few small medical bills and high-interest credit cards that definitely needed some attention. Paying those off was the first priority.                                                                                                               
  2. Start an emergency fund – Most financial planners recommend having 3-6 months worth of income in a stand-alone emergency fund. We certainly don’t have this much, but we established a separate account and added a little money, with a solid plan to add a little more out of each paycheck in 2019.  If all goes well, by the end of the year, we should have solid savings.
  3. Bulk up your retirement account – If your company offers a 401K, make sure you are taking full advantage of it. If not, speak with a financial planner about stating an IRA. Depending on your employment situation and income, you may be eligible to do both.                                                           
  4. Fund your HSA – If you have a high-deductible health plan, this is a fantastic way to make your money work for you. Money goes in pretax and grows tax-free.  It’s not taxed upon withdrawal as long as it is used for qualifying medical expenses.                                                                               
  5. Open a college savings account (or add to your current one) – If you have children of any age and you think you will be financially able to help them with college expenses, you may want to consider a 529 college savings plan. With these particular plans, you invest after-tax money and your dollars aren’t taxed as long as the proceeds are used for educational expenses.                                                                                                                         
  6. Life Insurance – This is something that my husband and I had thought about for years and never thought we could afford. When we sat down to really crunch the numbers, we were surprised at how affordable the term policies actually were. For a $500,000, 30 year policy, we are paying less than $30 each per month (it should be noted that we are both healthy and under age 40 with no pre-existing conditions). 
  7. A charitable donation – Anne Frank once said, “No one has ever become poor by giving.” If there is a non-profit in your life that holds particular meaning for you, consider a tax-free donation. It’s an awesome way to give to others and leave a legacy. 

It is important to remember, that although your tax refund may seem like “bonus cash,” it is actually a sign that, at some point during the year, you overpaid the government. 

It may be a good idea to sit down with an accountant or tax professional and review your withholdings for the next tax year. Making sure you are financially on track for 2019 can help you avoid debt and grow wealth.

What about you? Are you using your tax refund to improve your financial well-being?



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