7 Smart Things To Do & 3 Things NOT to do With Your Tax Refund

April 18 is quickly approaching. Yes, that's right, I said April 18, not April 15. The 15th falls on a Saturday, and Washington DC Emancipation Day holiday, which is the 16th will be observed the following Monday on the 17th, which makes the tax due date for this year the 18th. Deadlines aside, once you've finished filing your taxes, depending on your W-4 allowances taken and tax withheld throughout the year, or depending on the number of deductions and credits you claim, you may be entitled to receive a tax refund. 

While it's tempting to splurge on wish list items, take a step back and remember that this was your money all along. If you had the money throughout the year, how would you have spent the money otherwise? Below are 3 things NOT to do and 7 smart things to do with your tax refund.

3 Things Not to Do With Your Tax Refund

  1. Put it in your checking account as "cushion" and do nothing
  2. Go on a shopping spree 
  3. Spend it on upgrading items that are working perfectly (ex: TV, smartphone, etc.)

7 Smart Things To Do With Your Tax Refund

  1. Start saving (or continue saving) towards your emergency fund
  2. Start (or continue contributing to) a Roth IRA. *income limits may apply
  3. Pay off high interest credit card debt
  4. Invest in yourself - take a class that improves your skill set / makes you more marketable
  5. Use it for home improvement projects that will increase the value of your home 
  6. Start (or contribute more) to a 529 plan for your kid's college savings
  7. Spend it on a necessity that you've been putting off (ex: car tires, mechanical work, etc.)

Whether your refund is a large windfall or a couple hundred dollars, be smart and use that money to put you on a stronger financial path.

What will you do with your tax refund?

Book Summary: Smart Mom, Rich Mom

If you're looking to take charge of your finances, one way to help get yourself in the mindset and improve your financial literary is to read, and read some more. 


Here are my top three takeaways from Kimberly Palmer's book, Smart Mom, Rich Mom: How to Build Wealth While Raising a Family:

(1) Be strategic and think beyond short-term savings. Personal finance advice for moms tends to focus on how to shop less, coupon harder, or find purchase discounts. "We get a rush from saving $5 at checkout while leaving [hundreds of dollars] on the table because we didn't sign up for a flex-spending account at work to pay for childcare expenses or we left our savings in an account with zero return. We have to break out of this restrictive couponing mind-set and think bigger--much bigger." Moms should "focus on the more significant financial strategies that can really build our family's wealth over time."

(2) It's time for women to embrace their inner investor. When it comes to investing, traditionally most women have handed those reins to their husbands. In a Fidelity study, "most women said they were more confident in the ability of their partners to manage retirement finances than their own. Husbands tended to agree." (?!#@?!?)

Women make financial decisions that affect their families on a daily basis and they make 85% of consumer purchases. Isn't it time women manage investments "with the same confidence we apply to paying bills or planning the week's meals"? Whether through choice, tragedy, or the simple fact that women outlive men, it's "imperative for women to embrace their inner investors now." It doesn't have to be either or; together, you and your partner can make better investment decisions. In fact, "women tend to be strong researchers and planners--both of which are assets when it comes to investing."

(3) Model financial behavior to your children, and talk about money. "In a 2014 T. Rowe Price survey of kids between 8-14 years old, 45% of boys considered themselves 'very or extremely smart about money' versus 38% of girls. The responsibility for addressing this gender difference rests squarely on parents' shoulders, with parents being more proactive and making sure they're talking to their sons and daughters about these kinds of issues." Kids whose parents discuss the family finances with them are more likely to feel smart about their money. "Our children are watching how we spend, save, invest, and give money. We can seek out opportunities to talk about money with our children, even if it's awkward at times or uncomfortable." Start by using "everyday experiences, like a trip to the grocery store or browsing options on Amazon, or calculating tips at restaurants, to talk about money."

"If you have a spouse or partner, think about what your kids observe about the way you manage money together. Is one person usually the one paying or handling bills or making financial decisions? I make sure that both my son and daughter see me paying for items at the store and picking up the bill at restaurants, even though it means I have to fight the urge to just let my husband always pick up the check."

What books are you reading to improve your financial literacy?

This picture from one of my clients made me so happy! (Love the pacifier accent too!)

Why You Should Request Your Credit Report Annually

Your credit report is not the same as your credit score. In fact, your credit report won't even have your credit score on it. You have to request that separately. You credit score is like your GPA in that it's one number designed to capture your academic standing. Your credit report, on the other hand, is like your official school transcript that shows every class you took, what semester and years you took them, which ones you took pass/fail, which ones you took a grade for, etc. Both reflect you, but just in different forms. 

Many credit card companies offer credit score services and will show you your credit score when you log into your account online, but credit reports can only be obtained if you request it from one of the three credit reporting bureaus: Equifax, TransUnion, and Experian.

The number one reason to request your credit report is to make sure all the information in the report is correct, since your credit score is based off all that information. Roughly 8-9 years ago, I noticed a material drop in my credit score. Did I forget to make a payment on a card? Did my previous apartment complex say I still owed them something? Did my identity get stolen? I got really worried and requested a credit report from all three agencies and soon learned what the issue was. There was another person who had the SAME first and last name as me, went to the SAME college as me (she was one year younger - yes, I FB stalked), and ended up moving to Houston literally 3 miles from where I was living at that time. I knew all this based on the "Personal Information" section that lists all your previous addresses and social security number. Somehow our credit files got merged together! Thankfully, I was able to get the issue fixed and my credit score returned to where it was prior to the confusion. 

According to the Fair Credit Reporting Act (FCRA), each of these agencies is required (at your request) to provide you with a FREE copy of your credit report once every 12 months. I highly recommend going to annualcreditreport.com to request one copy, or all three. It takes no more than 3 minutes to fill in the information, and it's ready instantaneously via PDF. 

Within each credit report, you'll be able to see:

  • All your current cards (past and current), balances, credit limit, and payment history
  • Mortgage accounts
  • Installment loans (car loan, etc.) 
  • Personal information (names you use, previous addresses, social security number)
  • Inquiries - Hard and Soft
  • Bankruptcies, Judgments, Liens
  • Collections Outstanding

Q: If you request a credit report, won't that hurt your credit score?

A: No, as long as you are within the "every 12 months" time frame, your request will show up as a soft inquiry, which doesn't impact your credit score. 

Bottom line: It's free to request a credit report, it won't hurt your credit score, and you could potentially find an error that could improve your credit score. 

3 TED Talks That Will Make You Look at Money Differently

With "Learner" as one of my top five strengths according to Clifton's Strengthfinder, I always have a renewed sense of energy and feel more motivated after watching a TED talk. Instead of spending 20 minutes (or an hour....) on your social media feed tonight, why not watch one of these three TED talks that will make you reconsider the way you're spending, saving, or viewing money differently. 

Graham Hill: Less Stuff, More Happiness. Did you know that the US storage industry is a $22 billion/year business, with over 2.2 billion square feet of storage space? Hill's sub-6 minute talk on how "less is more" highlights how buying less things keeps you from spending money unnecessarily, but can also improve your happiness. Hill three actionable steps include ruthlessly editing your possessions, thinking small, and using items that are multi-functional. 

Alexa Von Tobel: One Life-Changing Class You Never Took. If you need a wake-up call of what the impact of not having enough financial literacy can look like, listen to von Tobel's raw 11-minute talk. Because financial education is not taught in schools, many Americans make their financial decisions through "trial and error." The domino effect of poor habits results in many Americans not having an emergency fund, not saving enough for retirement, or amassing too much debt. In her talk, von Tobel also gives her "5 Money Principles to Live By."

Adam Baker: Sell Your Crap. Pay Your Debt. Do What You Love. What does freedom look like in your life? In this 19-minute talk, Baker shares his own journey that began with thousands of dollars of debt, and ends with him being in control of his spending and being able to travel abroad as a family. Baker is an example of what can happen when you approach your finances with a different mindset.