During the month of March, the COMPASS blog is providing space for questions, guidance, ideas and reflections related to taxes. Today we welcome Grace Duddy Pomroy back to the blog to share her reflections. Grace currently serves as Executive Director of Operations at Kairos and Associates. Grace shares thoughts about what you could do with your tax refund, if you receive one.
This past week I was listening to the radio on my way to work and I heard a story about how people are using their tax refunds this year. According to the story, more people are using their tax refund checks to pay off debt and/or save for retirement than in previous years. The commenters I heard on the radio about this story commended these people for their desire to reduce debt and save and encouraged those who had not decided yet how to use their refund check to do the same. They then proceeded to seemingly admonish those who might use this extra cash to go on a shopping spree or take a family vacation because they really should use it for debt repayment or savings.
The word should can be misinterpreted in many contexts, including when we make suggestions about how others should use their money. So often people seem to be in search of a “one size fits all” way to use money. If you budget your money in X way, you will be able to make ends meet. If you budget X amount for retirement and emergency savings, then your family will be safe and secure. But ultimately, everyone’s situation is different. The way that you use your money should be unique to you, your family situation, and your values.
Maybe a better way to consider how to use a tax refund is not should, but could. What could you do with it? The only should I would offer is that you be intentional about it. Since you know the amount that you will receive before it arrives by check or in your bank account, take time to decide what you want to do with the money. If you don’t decide, your refund can get lost in your “general fund” and disappear before you have a chance to designate it.
Here are a few ways you could use your tax refund:
- Divide it: distribute it into a couple of different funds. This will allow you to give, spend, and save your money from just one check.
- Do Something Special With It: Go out to dinner, spend a night out, take a day trip away. Do something extra special as a sort of reward.
- Spend It: If you have maintenance on your car or home that you have been waiting to take care of, here is an opportunity to use these extra funds to pay bills.
- Pay Off Debt With It: If you are working hard to pay off a particular credit card or loan, this can really enhance your progress.
- Save It: If you haven’t started an emergency fund, this can be a great way to begin. You might also put this towards a particular larger savings goal or even a fun fund – like a travel fund. Another place to put this money is in your retirement fund. Especially if you are young, putting a refund check in a retirement account (even if the amount is small) can really pay off over time with the power of compound interest.
- Give It: Give all or part of the refund check to a cause or charity. Or, use it to buy something for a neighbor or friend in need.
Join the Conversation: How are you using your refund check this year?
This blogpost is adapted from a post that previously was published on Grace’s blog, “The Classy Frugalist.” It is adapted, reposted and shared here with Grace’s permission. Also, if you are looking for more thoughts about ways that you might spend your tax refund (if you receive one), check out these ways from “Money Crashers.”
About the Writer: Grace Duddy Pomroy is Executive Director of Operations at Kairos and Associates, and previously served as Assistant Director for the Center for Stewardship Leaders and Luther Seminary. She is author of “Stewards of God’s Love,” recently published by the Evangelical Lutheran Church in America. She blogs regularly and you can follow her on Twitter.
This blog is a component of the Ecumenical Stewardship Center’s COMPASS initiative to engage young adults in conversations about faith and finances. Like what you see and want to know/do more? Visit the COMPASS web page and join the COMPASS community on Facebook.
Image Credit: Tax Refund