It’s tax season, baby, and you know what that means—potential tax refund time! Ohhhhh yeahhhhh. Fingers crossed. If you’re still waiting on a tax refund, I’ve caught you just at the right time to help you avoid making mistakes when you get it.
I’m like the fairy godmother of tax season. Or something.
Anyway, you’re welcome.
Receiving a tax refund is usually pretty dang exciting…but also a little stressful? Are we supposed to consider this like a bonus? Like free money? Or should you tuck it away and act like you never got it?
Well, tax season fairy godmother or not, I can’t tell you what to do with your tax refund—not to be rude, but we just met. I hardly know you. But I can tell you 5 mistakes to avoid this tax season.
And if you’re still waiting on a tax refund, you’ve still got time to make a plan about what to do with it.
5 Tax Refund Mistakes to Avoid
#1: Spending the money before you get it
Way too many of us do this, often without really realizing it. It’s so freaking easy to spend that money four times over on twelve different things while still waiting on a tax refund because “HEY, FREE MONEY.”
“Hey y’all—dinner’s on me tonight. I’m about to get my tax refund.”
“Ya know kids, put the Playstation 5 in the cart. We’re about to get a tax refund.”
If you want to do something fun with your tax refund (and you are 1,000% more than welcome to), wait until it’s physically been deposited into your account. You never know what could happen between now and then, and it’s never a wise move to rely on money we don’t physically have in our bank accounts yet. Go ahead and dream, but don’t put down deposits or get into debt.
#2: Being in a rush to do something with it
One of our support members, Matthew, wrote a blog a while back on what to do when you receive a windfall. In it, he said, “New money comes with a false sense of urgency.”
This idea of “I NEED TO DO SOMETHING WITH IT RIGHT NOW”—renovate the kitchen, invest in the stock market, do something dramatic because we finally have the unexpected means to do so.
Hi. My name’s Hannah. Allow me to take that weight off your shoulders for a second, because it’s okay to take your time.
Speaking of time, The New York Times described this as letting your money marinate in the “Decision-Free Zone.” No one’s pressuring you. The money will be there tomorrow. Allow time to reveal some of your priorities, and it may become more clear what your best move is once that “new money” rush has faded away a little bit.
#3: Letting the money sit in your checking account
This may sound totally contradictory to what I literally just said, but there’s a difference between letting the money sit in your checking account and letting the money sit in your savings account.
The checking account has a debit or credit card attached to it…I don’t need to tell you how much easier that makes it to spend the money. And it doesn’t take much—just a little unexpected purchase here, a spontaneous Treat Yo’self Day there, and all of a sudden that tax refund is no longer. If you’re going to let the money sit, put it in a savings account where it’s less easy to access in a moment of financial spontaneity or…I’ll just say it: impulse.
If you budget with YNAB (like all the cool kids do), follow Rule One and give every dollar a job right away. Even if that job is to sit in its own category and chill for a minute.
#4: Expecting your refund to fix everything
How many of us let out a massive sigh of relief when we find out we’re getting that tax refund? “Thank goodness. Now I can finally get ahead with my money.” And it may very well be just the bandaid you need at the moment, but if you are constantly finding yourself having less money than what you need, this is only gonna be a temporary solution to a much bigger problem.
Pause and ask yourself: “What does my money need to do for me right now?”
What expenses typically “get” you? Maybe it’s time to set aside more money for those expenses now, so that you have more of a financial defense between them and yourself.
Could the tax refund cover rent for next month so you can…relax a little and not be scraping the bottom of the barrel on the first of the month? Is it time to start building up a sinking fund for repairs to your rusty Honda Civic, or maybe just start saving for a whole new one?
Putting money aside for our future, believe it or not, will actually help us get financially caught up in our present.
#5 Expecting the same tax refund next year
Maybe this year your tax refund came in clutch. Dude. Congrats. But your tax refund could look WILDLY different next year. You got $4,000 back this year, but next year you’re gonna OWE $300. Blech.
So maybe our wisest move this year is to start building our tax refund into our future. One of the easiest ways to do this is with a budget. Designing a plan for our money has this magical ability to show us exactly where we’re at. Your budget can tell you if all your money is gonna last you two months or two weeks. It can help illuminate what our financial pitfalls seem to be, because sometimes we just don’t know where all the money goes. It can give us the confidence to spend our money on what we want guilt-free because we know we designed the budget so that we could do that. There are about a million more totally life-changing benefits you’ll reap when you experience the power of a budget.
Happy Tax Season, friends! (Is that a thing? I feel like that should be a thing.) If you’re still waiting on a tax refund, I hope it hits your bank account soon. And I hope you have a plan for spending or saving it in a way that works for you.
Ready to gain total control of your finances with a budget? Try YNAB for free for 34 days—no credit card or commitment required!