How a Financial Advisor Spends Her Tax Refund

First of all, let’s review whether it’s smart to get a refund to begin with. Not really, and certainly not a sizable one. That’s letting the government take your money throughout the year, earn interest on it for itself, and then return it to you without even a thank you. Now, I don’t want to be swung on the other side too far and face owing a substantial amount either. The sweet spot is something that looks a lot like a non-event.

Yet, here I am as a seasoned financial advisor, with a sizable refund for the second year in a row. So, what did I do with it? First, after seeing a pattern develop, I went into my payroll system elections and changed my exemptions that the system uses to estimate how much tax to withhold to begin with. My payroll is currently the main source of my taxable income, so changing those elections should have the impact I’m looking for. If you are in a position of either a sizable refund or a sizable liability to pay, it’s a good idea to review your income sources and determine if you have the appropriate withholding being done.

Next, I looked at my Emergency Savings account and my Home Maintenance account to ensure both were at the level I wanted. Even more critical these days, it’s important to ensure your Emergency Savings is adequately funded; this is to be used in emergencies like losing one’s job. I talk here about the importance for federal workers and those contracting for the federal government. And recently Britt Patterson, realtor with The Patterson Group, and I discussed the value of continually maintaining your home instead of putting things off. This year, both accounts were where I wanted them; but in other years, this is where the refund road ends: topping up the house account or savings.

A backseat to both Emergency Savings and Home Maintenance, I next look at my Travel Account. As an avid traveler constantly on the go, I have a separate account dedicated to travel so I can more effectively plan those trips. With an expected trip to Japan this year, the funds needed a boost. So, I redirected about 15% of my refund over to the Travel Account to help with the annual expected travel plans.

With those priorities checked off, I looked at my list of a few things I wanted to update like new dishes. Bonus, I waited to get them on sale and used a gift card from Christmas! All in all, this amounted to about 10% of the refund.

Then, I moved everything else (75% for those keeping up with the math) into my investment account where I promptly took advantage of the recent market volatility. And this was probably the part that gave me the most joy – knowing I was investing in myself and my future me!

Whether it’s shoring up your savings, investing in your future, (and!) or making room for a little joy, a tax refund is an opportunity to take a step closer to financial confidence. The key is to have a plan and ensure it is consistent with your goals and values. And don’t be afraid to invest in yourself!

SEE ALSO: A Financial Checklist for Federal Workers

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