Do you often find yourself wondering what you should do with your tax return? It’s not a big secret that your tax return could be in the thousands if you have a few kiddos. As a family with five children, it is a relief when tax season rolls around. Our tax return helps offset any unforeseen costs we incurred throughout the year and helps to put money towards important financial goals for our family. You need to think about what you should do with your tax return for your family’s financial wellness.
At one point in our marriage, we didn’t have a plan for our tax return each year. Angela would get excited about the tax return, and then she’d get frustrated with me because I’d send it straight to bills or to the savings account. She had plans for it, but I wanted to make sure we had it available to us to help supplement my paycheck for those times when it just wasn’t quite enough.
After living paycheck to paycheck long enough, several years of marriage, and many tax returns, I created our monthly budget sheet. We decided to keep a monthly budget for many reasons, and doing so can help you figure out what you should do with your tax return.
It breaks my heart and drives me crazy all at the same time to see average folks getting their tax return and then running out to get the newest cell phone, gadget, or what-have-you—frivolous things. That is not an excellent example of what you should do with your tax return.
“Too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like.”— Will Rogers
Your livelihood probably doesn’t rely on a new Louis Vuitton purse or an expensive gadget, so chances are you don’t need it. I imagine that anyone reading this has a family. Your family is your number one priority. I ask you to ask yourself what you should do with your tax return that would benefit your entire family’s financial wellness in a positive way.
I’m not suggesting that you can’t treat yourself. I’m only asking that you consider doing so in a way the truly benefits the entire family. My wife would love to take this money and go on a week-long vacation to a beach somewhere. Don’t get me wrong, I would too, but first things first. That is to say, do the things that are most important first—like financial wellness for your family—then consider what can come next.
Now that you’re asking yourself what you should do with your tax return, here are key areas where our budget sheet helped us determine how to use our tax return for financial wellness.
Crush your debt.
I simply cannot express to you how liberating it is to know you’ve paid off your debt. Start here first if you have debt and you’re not sure what you should do with your tax return. Paying down our van was a huge weight lifted off of our shoulders. Financially, no longer having a monthly vehicle payment was a weight lifted off our budget and graced back into our savings account.
Credit card debt is a heavy hitter as well. It’s easy to rack up but not as easy to pay down. It’s crucial to stay on top of paying your credit card down each month to avoid incurring interest payments. Credit card interest is what you’re charged when you don’t pay off your full balance from month to month. Rather than recreate the wheel, here is a helpful article explaining credit card interest and how it works. It’s also beneficial to contact your financial institution of choice as their policies could be slightly different.
Set aside an emergency fund.
Throughout the year, we dip into our emergency fund for medical expenses. As we look forward into the year, I know our vehicles will need new tires, our washing machine sounds like a jet engine and will likely need replacing, and only the Lord knows what else will happen. If you don’t have much debt and you’re still wondering what you should do with your tax return, then set aside a few thousand dollars for an emergency fund. It’s a smart idea always to have an emergency fund even if you’re working to pay down debt.
You must gain control over your money, or the lack of it will forever control you.”— Dave Ramsey
Not having an emergency fund available to help with unforeseen bills can lead to you falling further into the hole of debt. Losing your job, getting into an accident, or having a crazy expensive medical bill are all real possibilities, all of the time. If you question what you should do with your tax return, then using your tax return for financial wellness by building your emergency fund can help you lessen the stress on an already stressful situation.
Grow your retirement.
Do you want to work up until the day you die? No? Then one thing you should do with your tax return is help grow your retirement. Contribute to an IRA! An IRA is an individual retirement account that allows you to save money for retirement in a tax-advantaged way. To learn a little more about an IRA, I suggest reading this article from Fidelity. It is an excellent place to get started!
Another alternative would be to increase your 401k contributions by the amount that you received back in taxes. I would disclude the money earned from the child tax credit, as this will eventually not apply once your children move out. The monies you return aside from any child tax credits are what you overpaid to the government and are receiving back. Calculate what that is and check with your employer about maximizing your 401k contributions.
Put money towards your savings goal.
Another fantastic option for what you should do with your tax return is to put it towards your savings goals. It doesn’t matter what they are—necessary home updates, vehicle maintenance or downpayment, medical procedure, family vacation—put some of your tax return towards it. Our washing machine is kicking the bucket, and our tax return would cover a new one and leave money left over for us to use our tax return for financial wellness in other areas.
Lastly, treat yourself.
What should you do with your tax return if you have little to no debt, an adequate emergency fund, your retirement fund is building nicely, and you don’t have any significant financial purchases you’ll be needing to make? Treat yourself, of course. Finances can be exhausting, stressful, and anxiety-causing. Using your tax return for financial wellness includes caring for your physical, emotional, and mental health as well.
Maybe your family won’t be taking a vacation this year, but a few new bikes may fit in the budget. Alternatively, perhaps this IS the year you can take the family on a memorable vacation. I wish I could say relaxing, but if the kids are going, it is less about relaxing but more about memory-making.
Another good investment in yourself is a quality mattress, quality lawn equipment, or maybe an online class you’ve wanted to take but never signed up for due to financial strain. Whatever the treat, make sure it is beneficial and not frivolous. A frivolous expenditure will ultimately cause buyers remorse and in no way benefit you or your family in a physical, emotional, or mental form.
We hope these tips have set you on a path to make good decisions when wondering what you should do with your tax return for financial wellness! Let us know in the comments below how you have used your tax return for financial wellness.