You are about to get a big check back from the IRS and you are finally going to use it to get caught up, pay off some debt and maybe even add to savings. That sounds really good but what usually happens is, once the money comes in, your resolve weakens and your grand plans for Visa and American Express are forgotten.
The Best Laid Plans…
Instead you use the refund to go on a much-needed vacation or you go make a big purchase. You deserve it, right?
Let’s be real. Your refund feels like extra, not-in-the-budget money. Since you really didn’t make a plan for it, it’s okay to use the money for whatever you want and you can get back to that pesky budget thing later. Right?
Create a Plan That Lets You Have Some Fun
So here is a suggestion: have some fun with your refund! Yes, you heard me right, enjoy yourself. But just don’t use all of it. Decide on a percentage to keep making progress with your money, like 85-90% and then use the rest any way you want.
Execute Your Plan as Soon as You Receive Your Refund
The key is to make a plan for your refund and stick to it. As soon as that money hits your bank account, immediately execute your plan. If you decided to use 10% for fluff, take it out in cash. Then move the rest of the money based on your plan. Don’t have any savings? Make an immediate transfer to start your emergency fund. You still have money left? Send the extra to pay down a credit card. Just don’t let the money linger in your checking account for too long!
Fix it So You Stop Getting Big Refunds
If your refund is more than $100-200, you should revise your W-4 to keep from withholding too much from your paycheck. Remember that a big refund just represents a big interest-free loan you are giving the government each year. Wouldn’t you rather have that extra money in your paycheck and have the luxury of deciding what to do with it?
Automate the Use of Your Extra Funds
After you adjust your withholding, you should see an increase in your paycheck amount. If your current goal is to save more, create a separate savings account and set up an automatic transfer of the extra money in your paycheck to this account. This will help put your savings on autopilot. This transfer should be scheduled to happen within a day of receiving your paycheck so the money doesn’t loiter in checking waiting for a ride to dinner…or the electronics store.
If you are having trouble deciding what you should do with your tax refund, we can help. Schedule a Free Assessment Call to find out how one-on-one coaching can help you create a plan to get out of debt, start saving more and eliminate the stress with your money.