Taxes
Zoe Team
2 min read
A tax refund isn’t a bonus; it’s your own money returned to you after an interest-free loan to the government.
The best way to use a refund is to align it with your financial goals, such as paying down debt or saving for the future.
Consider whether you should adjust your withholdings so you have more take-home pay throughout the year.
Prioritize your financial goals by paying off high-interest debt, building an emergency fund, or investing for long-term growth.
No, it is simply the return of your own money that you overpaid to the government during the previous year.
Generally, it is more efficient to adjust your withholdings so you receive your money during the year rather than waiting for a lump sum.
One of the few moments of excitement when it comes to doing your taxes is getting some of that money back. Roughly, 70% of Americans, will receive a tax refund this year … If you fall into this camp, what should you do with that check that’s in the mail? Let’s first take a look at what people say they plan to use their refund on according to this year’s Gobankingrates survey. Out of 5,000 respondents: 43% will save the money 36% will pay off debt 10% will take a vacation 11% other Ok, so an overwhelming majority of people plan to do the right thing and save this money or pay off their debt. Great. Hard to argue with that. Whether or not that actually do so we will never know. You can, however, choose to use part of your refund for some things and part for others. Although we all have a unique relationship with money, in a logical world this is how you should prioritize where your refund goes for the boring stuff.
Credit card interest rates are currently around 17%. In comparison, a high-interest savings account pays you 2.45% interest. That’s a pretty substantial difference. So if you are not paying off your credit card on a monthly basis, using your tax refund to do so is a no-brainer.
As we discussed in our blog Doomsday Prepping: Adding A Little Crazy To Your Finances, when life throws at you a curveball, having access to funds to cover the associated expenses is a priority. Before considering the fun ways on which to spend your tax refund, make sure you establish an emergency fund.
Ask yourself which number is greater: the potential return on your investment s or the interest you are paying. If you are paying more interest on your existing debt than you could earn by investing your tax refund, you are far better off paying down debt. It is important, however, to consider the emotional component here. Besides the math, for some people, it might help them to sleep better at night having a smaller debt load, regardless of the interest comparison.
If your partner or children depend on your income, having adequate life insurance is essential. Protecting your loved ones from any unforeseen life events is one of those unfun “to-dos”. You just have to suck it up and get it done.
Disclosures: Zoe Financial, Inc. ("Zoe Financial") is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Zoe Financial provides investment advisory services and access to independent registered investment advisers through its platform. The information provided by Zoe Financial is for educational and informational purposes only and should not be construed as personalized investment advice or as an offer to buy or sell any security. All investments involve risk, including possible loss of principal. Past performance is not indicative of future results. Clients should consult with their own financial, tax, or legal professionals before making any investment decisions. The material presented by Zoe Financial is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Material presented has been gathered from sources believed to be reliable, however Adviser cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Past performance is no guarantee of future results. Zoe Financial does not provide legal or tax advice, and nothing contained in these materials should be taken as legal or tax advice. SEC Registration does not constitute an endorsement of Zoe Financial by the SEC nor does it indicate that Zoe Financial has attained a particular level of skill or ability. The sole purpose of this material is to inform, and it in no way is intended to be an offer or solicitation to purchase or sell any security, other investment or service, or to attract any funds or deposits. Investments mentioned may not be appropriate for all clients. Before making any investment, each investor should carefully consider the risks associated with the investment, as discussed in the applicable offering memorandum, and make a determination based upon their own particular circumstances, that the investment is consistent with their investment objectives and risk tolerance. Lower expenses do not guarantee better investment performance. Certain information contained herein may constitute forward-looking statements. Due to various risks and uncertainties, actual events, results or the performance of a fund may differ materially from those reflected or contemplated in such forward-looking statements.
