Dear Chuck,

I am so excited because we’re getting a significant tax refund this year! What are the best uses of these unexpected funds? 

Rejoicing over Our Refund

Dear Rejoicing over Our Refund, 

It is always exciting to receive unexpected funds! Like you, millions of Americans receive refunds every year. According to IRS data, the average direct deposit refund amount has decreased year over year. The weeks ending February 3, 2023, and February 2, 2024, were $2,056 and $1,543 respectively which is a 25% decrease. I think that is good news. 

A tax refund is essentially an interest-free loan that you make to Uncle Sam. In simple terms, you have overpaid your taxes and have filed a request for them to send it back to you. Now, to be fair, it is far better for most than owing more taxes and finding yourself unprepared to pay. But do consider adjusting your withholding or quarterly payments to reduce the amount you are refunded in the future by adjusting W-4s. Check out the IRS tax withholding estimator, and revisit your W-4 form at least once annually. Major life changes like marriage and babies or changes in tax laws are reasons to take an extra look and make adjustments. 1040.com explains how to do it. Divide your refund by 12 to calculate the monthly increase you would receive in lieu of future refunds. Figure out how you can best use this money in a dedicated manner throughout the year. Now to your question…

Don’t Blow It 

Having had a similar experience with a tax refund, I know it can feel like “free money.” Often people look at a big inflow and have serious temptation to use it frivolously. Here is an article about just that: Outrageous Ways Real People Spent Their Tax Refund. 

Good Uses of Your Tax Refund

Larry Burkett said, “How we use our money is the clearest outside indicator of what we really believe. . . . If someone is a true disciple of Jesus Christ, the evidence will be found in that person’s everyday life—including his or her use of money.” I would add “and the use of his or her tax refund.” Without knowing your specific financial situation, here would be my list of priorities:  

• If you have not already done so, consider how these funds can go to advance God’s Kingdom—a guaranteed return on investment! 
• Pay down high-interest credit card debt. 
• Fund an emergency account: plan to cover 3–6 months of overhead expenses. Consider adding some short-term CDs to the mix.
• Pay down a high-interest car loan, or purchase a reliable used car without financing. Or open an account to fund a replacement vehicle in the future. 
• Invest in your career: skills training, certification, or a degree that will provide greater income and job satisfaction. 
• Invest in your health and wellness: consider a gym membership or home workout equipment, buy some good tennis shoes for walking, or take care of any medical issues that need attention. You could also start a garden to grow organic herbs and vegetables. 
• Invest in real estate: save for a down payment, do needed repairs, or start a renovation that will increase your equity. Replace old windows and HVAC to lower energy bills and increase the value of your home. If appliances are old and in danger of going out, replace them with energy-saving models. 
• If you have a high-interest mortgage, plan to reduce your principal or refinance when rates drop. 
• Buy or increase your life insurance. If you have a family, you can increase a term-life policy for several hundred dollars. 
• Create a will—a nominal fee that will bless beneficiaries. If you have children, this is essential. 
• Start a side business—a great hedge against job loss or inflation. 
• Save for retirement: ladder CDs, invest in IRAs, or make catch-up contributions to IRA, 401(k), or 403(B) accounts. 
• Invest in the stock market: adjust risk according to your age.

If you’ve covered all the above, then plan a vacation or celebration, and enjoy the benefits of stewarding wisely! 

Set and achieve your goals with the help of a personal business coach. Crown’s online Budget Coaching program matches you with a certified coach who will work with you to develop a customized plan to put you on the road to financial freedom. 

This article was originally published on The Christian Post on March 8, 2024.