Spending Your Tax Return Money – Do’s and Don’ts

February 12, 2021 Stu Q

At some point in every American’s life, you will file annual taxes with the Internal Revenue Service (IRS). Depending on your current situation, you will likely have to pay more money in or receive a check back for overpayment. Although the first one is common, the latter is always preferable. Having been in both situations, it requires some keen insight and some managing of your income.

When working with your taxes, it is always wise to work with a licensed tax professional.They will be able to answer your questions and provide more tax advice.

If you have had all of your tax withholdings set up properly, you will likely receive some cash back. When you receive this news, you will probably already have a list of things you want to do with the extra money, right? Plans can include anything from buying a new TV to using it as a down payment on the new quad cab truck you have been eyeing for the last month, but cannot quite bring yourself to selling your current car to do it! Sorry, it’s a gorgeous truck…

I would suggest performing the following to add a bit of logic to the decision-making process.

Make a List of All The Items You Want to Spend the Money On

Type it up, write it down, save it as a voice memo, add it to your Snapchat timeline. Do something to list out things you are thinking about for these funds. You may not have everything initially either. This can be a working list of the items you are thinking about. Be sure to include the costs associated with each item as well. If you do not know the cost, either research it or remove the item from the list.

Rank Them

Count up the items you have listed. Now, rank them from highest to lowest for importance/needs. I am excluding the dreaded “Wants” here because they are quite subjective and can cloud the logical process of the list. For “Needs” be sure to ask yourself, “Can I live without this?” If the answer is “No” and you are being honest, it is certainly a true need.

Add Up the Needs

As you should know how much you are getting back, you know what value you are trying to hit. For all of you math nerds out there, solve for “X” with “X” being the money are going to receive. I would add up your top five needs first. If you still have the room with the value, add in one item from the list at a time starting with number six on the list. If you add in an item and exceed your “X” value, back it out of the value to once again have remaining cash from the aforementioned money.

Be Patient and Wait

Yes, you have listed, ranked, and narrowed down the list. Now it is time to wait. If there is one thing you can guarantee to happen, it is life. John Lennon said it best, “Life is what happens to you while you’re busy making other plans.” Waiting a bit to ensure nothing imminent is going to happen would be ideal. Obviously, some situations do not allow for this luxury. In these cases, you likely have no choice but to spend the money almost immediately. However, once you have been able to wait it out for a couple of weeks, then proceed with one item on your list at a time, just in case.

Do Not Let the Thrill of Money Cloud Your Judgement

I have mentioned it you all in previous posts. It can be quite easy to plan too much or too little with money you are receiving or earning. One of the biggest benefits of being logical about proceeds such as tax return money is the ability to accurately track and know where it is going. Unfortunately, I have seen countless individuals blow through a large sum of money in a matter of days and weeks. The case is also true where they have spent the same dollar two or three times over. For example, they received $1,000 and spent it three times before they realized it and are now $2,000 in debt as a result