You may be someone who is receiving a tax refund this year. If so, hey, awesome for you!
What are you going to be doing with that money?
Today’s post will focus on learning to prioritize and plan what to do with your tax refund. If you happen to be someone who is not receiving a tax refund, hey I hear you, been there, too. This can still be relevant to you in terms of learning to prioritize with any sort of money.
I’m only talking about taxes in order to be topical.
Plus, I think when you get a refund, it is easy to lose track of it and spend it without having a plan. If I happened to receive a refund while I was living paycheck to paycheck, I would lose control and before I knew it that money was gone. Why? Because I wouldn’t be used to having “extra” money in my bank account. So, like with any time you may find yourself with some “extra” money, whether a refund, overtime pay, or side gig pay, we can try and form habits that will help us hold onto that money a little longer and prioritize where it is spent.
Tip #1: Create Goals
When creating money goals for a refund, extra & side income, I like to ask myself a few questions.
Is there something I have been meaning to get around to that I have not yet?Outstanding bill? Class I’ve been meaning to take? Something that needs to be repaired sooner than later?
Is there something I would like to get to in the future that I can plan towards?
A trip somewhere? A class I haven’t thought about yet? A renovation project? Early retirement? (ha…)
These two questions help me actively think about how to best allocate any extra money I have coming into my bank account. By actively asking myself these questions, I can then create goals to categorize that money into it.
Since I am receiving a refund this year, the answers to these two questions turned into the following goals for myself:
- Pay therapy deductible from earlier last year. (immediate goal)
- Pay extended car warranty deductible to fix minor inconvenient issue. (immediate goal)
- Set aside for Peru trip in April. (short term goal)
- Set aside for general savings fund. (long term goal)
I like to create goals that are a variety of immediate, short and long term. This makes it easier to be able to form a habit of not saying BYE to that extra money right away.
Tip #2: Visually Organize
“I’m keeping track of it in my head,” is something I used to say all the time. Guess what! It didn’t work for me because I learned that having a visual representation of these goals holds me more accountable than just keeping it all in my head.
How can you visualize it?
You can simply write it down somewhere you will actively look at it. It can be as simple as a list. However, I found that drawing it out in a little web of sorts and color coding helps me out more than just a written post it. See example below:
(This was one visual representation while I sorted out my priorities. My brain works best when I am drawing out, literally. Sometimes it takes a few drafts before I settle on a final version.)
Check to see if your bank’s app or website has a feature that will help you categorize your money. For example, I use Simple. The Simple app and website have a “Goals” feature where you can move money in your bank account to different categories. This becomes a useful visual guide of where you PLAN on using your money.
(Photo from Simple’s website)
Tip #3: Divide & Conquer by Calculating
Decide based on your goals how much of the extra money you find yourself with will go to each of those goals. I like to use a spreadsheet, but again you can write this down. Assigning a fixed amount to each goal makes it easier to reach than simply telling yourself “Some of it will go to Goal 1, some of it will go to Goal 2, and whatever is left over will go to etc etc”. Throw ACTUAL numbers in there. Doing so can help you feel more in control. Below is how I used my spreadsheet to divide & conquer my goals with my tax refund.
(The above spreadsheet example allows you to throw in numbers and calculate toward the different goal categories.)
Actively planning using these strategies helps me hold myself more accountable toward actually using that extra money toward what I say I want to use it on. Does the idea of buying a Nintendo Switch spontaneously tempt me to splurge instead? YES, BECAUSE DEAR GOD AM I THE ONLY ONE WITHOUT A NINTENDO SWITCH YET? However, I am in charge of prioritizing my goals. Unfortunately, the Nintendo Switch just isn’t one of my more immediate goals.
As with anything I post on this website, you are free to disagree with what I offer. I’ve only developed these strategies having dealt with a lot of financial mishaps, and so far I have been on a better financial path. You may learn that you work differently and that what works for me doesn’t work for you, and that’s fine! I want to encourage you to find what works for you! (and maybe share that with people!)
Don’t forget you can ASK THE PIG a question to be answered during next month’s ASK THE PIG post.