Income tax filings are due next week. If you owe, then you have my sympathy. If you will receive a return, congratulations! (Although, perhaps we should discuss how using the government as a forced savings account may not be the wisest choice…) While waiting, you may already be contemplating what to do with your income tax return. Should you save it? Should you treat yourself? Should you invest it? Your self-control super power can help you make this decision.
Stop and Think
Should you buy the Apple Watch Series 6 or stick with the SE you currently own? Should you deposit the return in your long-term savings account so that it’s easily accessible when you want to spend it later? Should you invest it in your IRA and not spend it for several years? You know putting money away in your emergency fund is always a wise choice, but it’s hard to fight the temptation facing you right now. To control your spending, stop and consider what you already have. Then, determine the value of buying more stuff. For example, Is the Apple Watch Series 6 an exponential upgrade from your SE? Do you have to purchase it right this second? Walk away while telling yourself that you’ll revisit it after your income tax return arrives. There’s a good chance that the Series 6 you feel like you can’t live without today will lose a bit of its lure by then.
Pause and Play
Can you afford to be generous? Think about allocating a percentage of your income tax return to spend on someone or something you love. For example, you could plan to take your kids out to a movie, your partner to a minor league baseball game, or a friend for a manicure. Are you back to eating out at locally owned restaurants? Make a mental note to generously tip your server. Do you go to church? Consider dropping your designated dollars in the offering plate or use the giving app. Is there a nonprofit organization you feel passionate about? Donate to it. Fun fact: if you donate to a church or nonprofit, you may be able to claim it as a tax deduction for this year.
Refine and Iterate
Use the wait to audit your budget process. Evaluate whether or not it still serves you well. If the word “budget” feels too restrictive to you, then call it something else, like “freedom plan.” A budget is simply a strategy that empowers you to reach financial freedom. The typical budget advice is to divide your net income into a 50/30/20 split: 50% should go to your basic needs like food, clothing, and shelter. Spend 30% on self-care. Save or invest 20%. Disclaimer: This is not my favorite advice because it makes no mention of charitable giving. If you feel overwhelmed, try a budgeting app.
If you adopt a mindset that it’s fun to speculate what to do with your income tax return, then it’s easier to exercise self-control over where it will go. That gives you something money can’t buy, peace of mind.
Spend, save, give, or invest. Which are you doing with your income tax return? Please share in the comments.