Plan For Your Upcoming Tax Return
Posted 2/10/2021 by Linda Jacob

Plan For Your Upcoming Tax Return

By Linda Jacob, AFC®, CFP®


It’s that time of year.  We are all working diligently on our taxes, and hoping, as always, that we will receive a nice return.  People like to treat this as “free money”, but it really isn’t.  It’s just money that you lent to the government to use all year, (at 0% interest rate) and now they are paying you back.

So, with that in mind, take the time to make a plan on how you and your family want to use this money, and do it before it makes it to your bank account.  This will eliminate the inclination to just go crazy since it’s “free money” and nowhere in your budget.

Start by setting up an Emergency Fund if you don’t already have one.  You should have at least $1,000.00 in a separate account so that when life happens, you can cover the expense without going into debt.  If you already have this, consider increasing it to 3 times the amount of your monthly expenses.

Next, make a list of your desires, whether it’s a trip, to pay off debt, buy a new couch, add to retirement etc.  If you are married, your spouse will need to do this too.  Once those lists are made, sit down and prioritize both lists.  Remember that cooperation is the key to harmony.  Be willing to spend some of the money on your spouses wants, even if they aren’t yours.

Go down the list and cover as many of these wants as you can. By not deciding on the fly how you will spend this money, you know that you will be making the best decision for you and your family.  You can be proud of your new money management skill.