Here’s what you should actually do with your tax refund. Spoiler it's not “investing”.

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I might get some pushback from this but–it's my publication and the only rules I have to follow are my own. 👋😏 [#I'mTheBoss]

If you’re expecting a tax return sometime soon the “proper” advice you’ll be getting is to put it into your retirement savings blah blah blah.

Well, you know what? Maybe if the economy were stable enough to provide the average person with job security, decent raises, and a tank of gas that didn't cause us to be making life decisions at the pump— then yes I would completely agree.

But that’s not the state of the world right now and as a 29-year-old who has another 50ish years before retirement, I’m sorry, but bills are due in the here and now.

So as an expert in keeping your life afloat during uncertainty here’s what you should and should not be doing with that money.

And I have to say this for legal reasons; this is in no way professional finance advice only an opinion and you should take it as such. 

Don’t do these 3 things with your tax refund

Keep in mind that these three options are a general take, each instance will be different and you should take this as it applies to your situation. But if you’re behind on bills, have no emergency savings, and have all of your credit cards currently maxed to no end–you should definitely NOT do any of these three things:

Don’t put it into your 401k or retirement account

Your 401(k), IRA, etc. is a retirement account, and as great as it is to save for retirement, you cannot get this money back without penalties once you put it into the account.

So think long and hard before you opt to put in this money because you cannot undo it once you do. And of course, there are different ways to go about this, I’m just saying don’t be too hasty.

Consider putting in only a portion, or if you’re uncertain about your finances (literally everyone right now), then maybe hold it for a while in a short-term CD or high-yield savings account and put it in at the end of the year.

Don’t pay off anything that is interest-free (right now)

Cash is king. And just like with your 401(k), if you apply your tax refund to a loan or credit card balance you can’t get it back.

For example, say you have $2,000 on an interest-free credit card for the next 15 months. You get $2,000 back from your tax refund and you pay off that credit card. Great job.

But (hypothetically) you get laid off that next week– Now you’re out $2,000.

That would’ve come in handy right now while you search for a new job. You may be thinking– “Well now I have credit available and I can just use my credit card.”

Here’s the problem, there’s a good amount of personal must-haves that you can’t pay on a credit card, like an auto loan, mortgage, or other credit cards. So while you can use your credit card for some expenses the major bills tend to want cash.

Plus, you’re on a ticking clock with that credit card being interest-free, and let me tell you, credit card interest at 25% is no joke even for the smallest of balances.

Don’t just blow it

It's tempting I know.

Especially if you rarely see that kind of money. The worst mistake I’ve seen people do is use it as a down payment on a car. And not a reasonable one–one that they can’t afford and frankly don't need.

Don't be this person. Use some common sense when deciding on things like buying a car. And I'm not against enjoying it (but more on that below).

Do these 3 things with your tax refund

Now here’s the fun part, where you can apply that tax refund and feel good about it. Without all the delayed gratification (well not completely at least). 

Get caught up financially

The saying “the year just flew by”, well in reality for some it flies by like a hurricane and damages everything in its path along the way. Not to sound too much like a pessimist but that's how many are feeling right now.

The past 2-3 years have been rough. And for many, tax refund season is the big reset (move over New Year's resolutions). So if this is you, then take that money and give yourself some room. Catch up on your late payments, get back in good standing with your lenders or at least call them and see if they will work with you.

Build that emergency stash

I’m a big believer that emergencies and life's unexpected problems are not uncommon. If fact I believe the opposite. Life will happen to everyone.

The difference between getting a sucker punch and still standing versus falling flat on your back comes down to one this– Preparation. That’s the key. How prepared are you for an emergency or unexpected event?

For many, the answer is not at all. Most say they couldn’t scrape together $500 if they had to. This is a scary place to be in life.

So my next option for those who are caught up with their bills but live paycheck to paycheck is to put some money aside. That emergency fund will be a lifesaver. That won’t mean you’ll be ready for everything but, as I said above, when an emergency does happen it will feel more like a sucker punch than a TKO.

Treat yourself guilt-free

Now, if you have your bills caught up, your emergency savings are established and you have your immediate ducks in a row then here’s exactly what you should do– ENJOY YOUR TAX REFUND.

(Pause for the dramatic gasp🫢).

Bet you’ve never heard that before from the popular finance gurus. But it's true. You see, what I found when I was a die-hard budgeter, saver, and debt payoff powerhouse. I got burned out a lot. And who wouldn't?

Even with the best saving and budgeting tactics, debt payoff including credit cards, auto loans and student loans is a very very long play. It could be years or even decades for some. And while chipping away at that seemingly large pile of debt feels great its a big lift.

Eating nothing but the cheap stuff, not going out to eat, not going on vacations, and living with no TV (yes I did this) will wear you down. Maybe not the first three months, but check back in at month six.

Even with the best of intentions, you will feel drained and defeated. What happens next is typically a binge shopping session or worse a new car purchase (Don't. Do. it!).

So treat your tax refund like a cheat meal when you’re dieting. Enjoy it guilt-free. Buy that nice dinner, splurge at the grocery store, or put that money towards a fun weekend getaway. What this does is humanize the process.

It's a long road and if you don’t stop to take a break, the process just might break you instead.