I’m excited to kick off a special podcast series focusing on financial spring cleaning! Today, we’re diving into a topic on everyone’s mind this time of year – tax refunds.
Whether you’ve already filed your taxes or are still putting the pieces together, it’s essential to think strategically about your tax refund. Putting your tax refund towards debt might feel good temporarily, but it’s not a long-term solution. If it were effective, you wouldn’t be back in the same debt cycle year after year. You need a better plan, and I’m here to guide you through it!
In this episode, I outline four ways you can leverage your tax refund to set yourself up to meet your money goals in 2024. From how to create a zero-based budget to planning for upcoming expenses to investing in money management tools, I give you detailed, actionable steps to help you make real progress managing debt. (Hint – none involve paying off a credit card with your tax refund!) If you are ready to break the debt cycle and change how you think about and manage your finances, tune in to learn how your tax refund can be the first step toward achieving financial freedom.
Stay tuned for insights on these topics:
- [01:30] Why you shouldn’t put your tax refund towards debt
- [03:15] 4 things to do with your tax refund
- [03:30] Outline a zero-based budget
- [06:12] 90-day financial forecast
- [12:00] Split refund up to hit multiple money goals
- [14:80] Invest in coaching
Tune into this episode of Money Files to learn why you shouldn’t use your tax refund to pay off debt!
If you’ve been waiting for the perfect time to start working on your money management skills, here’s your sign: the time is now. Apply to work with me, and let’s start working towards your financial goals.
IF YOU LOVED THIS CONVERSATION ON, FINANCIAL SPRING CLEANING: 4 THINGS YOU SHOULD DO WITH YOUR TAX REFUND, CHECK OUT MY EPISODE ON RESHAPING HOW YOU THINK ABOUT AND PLAN FOR EXTRA INCOME!
Transcript for “Financial Spring Cleaning: 4 Things You Should Do With Your Tax Refund”
Intro: Hi and welcome to Money Files. I’m Keina Newell from Wealth Over Now. I work every day with professional women and solopreneurs to help them get out of financial overwhelm and shame so they can experience more flexibility and ease with their finances. Are you ready to gain confidence and learn to manage your finances intentionally? Tune in and grab financial tips that will help you master the way you think about and manage your finances.
Keina: Hello and welcome back to another episode of Money Files. So I’m going to do a little series for you that is just going to be focused on financial spring cleaning. I thought that would be timely and it would be fun for me, hopefully fun for you to really talk about just money and how money is shaping your life right now. So today we’re going to be talking about the tax refund. You may or may not have pulled everything together to file your taxes. Maybe you went and you did, you e-filed, you already did it online, whatever it is. People are prepared for tax season. Some of y’all are hiding from tax season because you’re scared of what you may owe. But there are some of y’all that are waiting for whatever check the government is going to give you.
And one of the things that I notice, and it’s true for a lot of the clients that have worked with me, is that they take their tax refund and they go and put it towards their debt.
And that’s what they do year after year after year. It’s like that habitual habit. And they know when March or April comes, they’re taking their tax refund and they’re putting it towards debt. And if you are listening to me right now, you may be in a similar position where you just take your tax refund and you put it towards debt. And I came to ruffle some feathers. I don’t want you to put your tax refund towards your debt. It’s not effective. If it was effective, you wouldn’t need to do it year after year. If it was effective, it wouldn’t be August 31st and you’d be right back in the same amount of debt that you’re in right now.
It feels good. It can feel good to you to take this lump sum of money and put it towards your debt, but it’s not working for you because you don’t have an actual plan to stay out of debt. So I’m literally in bold letters telling you, do not use your tax refund to pay off your debt because it’s not working for you. And you are creating that cycle that you’re in, where you’re in and out of the debt cycle. You’re in and out of debt cycle. And until you know why you’re in debt, you are not going to be able to successfully pay down your debt because you haven’t shifted your habits and you haven’t given yourself a plan for how you actually want to spend your money.
So I want you to get your tax refund and I want you to just set it to the side. Like put it on the nightstand, alright, Keina told me not to use this to pay off my debt. And I want to give you four things that you can do with your tax refund instead or before you decide what you want to do with your tax refund. So the first thing I want you to do is I want you to create a zero based budget. And if you actually go to the show notes, in my show notes, I’m going to put a template in there. It’s my spending plan template that I use with clients. And so you can walk through this exercise yourself, but I need you to create a zero based budget. And I want you thinking about what and how do I spend money outside of just paying my bills? I was literally just talking to a client today and she’s like, oh, Keina, I’m sorry if the dog walker comes while we’re talking, just ignore them. I was like, oh, you have a dog walker. You don’t have that in your plan.
And so I said, how much does it cost to get your dog walk? She’s like, $25. Alright, how many times do you do it? Three times a week. Well, that’s $75. Multiply that times four, that’s $300 a month for dog walking. So not only is dog walking not in her budget, even though we are budgeting right now together, but it’s things like that. Going back to my fake math episode, it’s things like that that you are not considering when you think about your budget that make you feel like you have no money, even though you make the most amount of money you ever had. And so when you’re making your budget, I need you to think about the things that you use your credit card for. I need you to think about the things that make you roll your eyes when you have to pay them.
And where are those reflected in your plan? Because the way that it’s going to work in order to stay out of debt is we have to plan for the things that we normally put on our credit card. I’m working with another couple right now, and they tried to tell me that they weren’t going to save for auto maintenance. I’m like, no, no, no. You’re saving for auto maintenance because you have a car and because you have a car we have to save for auto maintenance, even if it’s $50 or $25 a month. But just saying like, no, right now I’m so focused on paying off debt or I just got my car fixed. That’s the mentality that puts you back in that debt cycle. And that’s why I don’t want you to pay off your debt with your tax refund because you don’t know how to manage your money. And if you don’t know how to manage your money, you’re going to have given away $5,000, $2,000 to credit card people only to recharge to thousand, $3,000, 8,000 on your credit card because you didn’t think about the dog walker, you didn’t think about your car needing to be fixed.
You forgot that you were going to buy a thousand dollars plane tickets because you promised one of your girlfriends that you were going to go on a trip. So the first thing I need you to do is to create a zero based budget and you can find my spending plan template in the show notes. The second thing is I want you to think ahead about the next 90 days. What do you have coming up in the next 90 days? So I’m recording this episode, it’s going to be March when it plays. So I’m going to use the next 90 days, due the end of March. I want you to think about April. I want you to think about May, and I want you to think about June. It’s starting to get warm outside. You are going to start planning trips, you are going to start booking plane tickets. You are thinking about where you’re traveling. These are the things that are happening.
You are going to be outside more. All of a sudden the world is going to become more expensive because your spending habit is going to change. There are seasonal shifts that happen with your spending. Just like the seasons change. When you’re inside during the winter, you’re probably spending a little bit less because it’s so cold. And then when it gets warm, like that first 75, 80 degree day, all you see is people outside at happy hours. Everybody needs a manicure and a pedicure. And so those things are happening, but I want you to literally open up your calendar and look at what is happening in the next 90 days, April, May, June.
So I’m asking you by doing this exercise to start planning ahead, start thinking ahead. Because if you are just thinking about your electricity, if you are just thinking about the gas bill, if you are just thinking about your car payment, you are not thinking about the Memorial Day weekend trip that you already planned with your girlfriends. And so you’re not going to be thinking about that until May 5th when you get paid. So we want to think about it right now because it goes back to the spending plan that I ask you to create. Where are the activities that you want to do in April, May, and June? If you had to give a category for what those things are, how are they showing up in your monthly budget. How is your love of summer concerts showing up in your monthly budget?
It should be there in the winter. It should be there in the fall. It should be there in the spring and ready to support you in the summer. And if you don’t catch it and if you don’t actually go through this, you actually going and using your tax refund to pay down your debt, it’s not going to work because you’re going to pay down the debt, which is just going to clear space for you to start charging and swiping your credit card again. Because there are going to be so many things that you’re going to be like, oh my goodness, Keina yolo, I don’t want to miss out. Like all these things. And so you’re going to be in the same amount of debt come September, come December, because you weren’t thinking.
A beautiful thing you could even do with your tax refund is like, oh, let me actually fund my Christmas account. What if you could take a thousand dollars of your tax refund and put it towards your Christmas account? Because I bet you there’s a thousand dollars in your credit card sitting from what you did over the holidays. And so that’s what I mean when I’m saying I need you to be thinking ahead. I need you to be thinking about how can I use my tax refund to get me out of the debt cycle? Getting out of the debt cycle is not just about paying off debt, getting out of the debt cycle is correcting how you spend money and starting to learn and think ahead.
When I’m working with clients on this, they could tell me like, I have a client right now who has a big bonus and him and his wife, they want to pay off the debt. And I’m like, okay, I need to watch your spending for another week. Why do I want to watch their spending? Because if we haven’t addressed the root issue, they’re going to still be bleeding out money. I have something in my five month coaching partnership and I start talking about the debt bleed out identifier. So when people come to me and they’re like, Keina, I want to start paying off debt and like we’ve done one or two calls, I listen to them, but I’m also like, hey, this is the process that we’re going to work through because I want to see are we seeing actual changes with your credit card balance?
If I notice that your credit card balance each week were meeting that you have charges on there that don’t actually match up with the plan that we’ve created, we’re not ready to start paying off the debt. We need to identify what are these charges, where are they coming from? Can we put them into the plan until we’ve identified the root source of the problem is paying off your debt going to have the intended impact? Because I had another couple that I was working with and she was like throwing a thousand dollars here and a thousand dollars there from a lump sum of money that she got from an inheritance. And she was so baffled as to why she didn’t see her credit card going down because we hadn’t identified the root cause of why her credit card was increasing.
So although she was putting a thousand dollars on it each month, what was also happening is that she was charging an extra thousand dollars on it. So of course it’s not going to go anywhere, it’s just going to become stagnant. So part of this is really learning how to think ahead, start planning ahead and making sure that we’re including the things that we actually spend money on and moving beyond just having a list of bills. So the next thing that you can do with your tax refund and really to prepare you before you actually think about what you’re going to do is when I have clients that are in like a debt payoff mode, I very rarely, if they got a lump sum of money, would I be like, okay, put all of this towards debt.
And the reason is because, especially if they’re working with me, they have other goals that they’re working towards and they generally kind of want to be able to treat themselves. And so we come up with how do you want to be able to split your money up, the lump sum and how can it support paying off your debt? How can it support a savings goal and how can it support some fun in your life? So one of the percentages that I’ve used with clients before is like let’s put 70% of your tax refund in this case towards your debt. Let’s put 20% of that towards a savings goal or beefing up your emergency fund. And let’s put 10% of this towards something fun. Just your drama free spending. And so let’s say your tax refund is $1000, what that gives you the opportunity to do is take $700 to accelerate your debt.
You can take $200 and you can save it because having money saved is going to keep you from using your credit card as well. And then we can take a hundred dollars and just go do something fun with it. Maybe you want a really nice dinner, maybe there’s a concert ticket you’ve been eyeing, whatever that is. But if you have $2,000, you would get 1400 and then you would have $400 that you saved and you could use $200 for fund. But like you can play with the percentages, but notice that I’m feeding different parts of your financial wellbeing. There’s a part of you that wants to pay down your debt because it’d make you feel better. There’s a part of you that also wants to save money so you have safety. So we’re feeding safety. And then there’s a part of you that’s like Keina, I only live once and I just want to be able to spend without thinking about it.
And so that’s why we have that fun or the drama free spending. And so you get to feed all of those things and it doesn’t mean that you don’t get to work on your goals simultaneously. They’re all going to work in connection with one another and get you to a place where you are going to start seeing this snowball of progress because of the fact that you’re not going and depriving yourself. You’re also making sure that you pay attention to your future self by saving money. And then you are going to start paying down your debt with a specific amount of money or percentage of money. And that’s going to make you feel really good overall as well. So the last thing that I’ll tell you, you can do with your or like before you pay off your debt with your tax refund is like use your refund to invest working with me. And I will say that without any shame.
The reason being is because you’ve been here before, you’ve used your tax refund to pay off debt, how many times. It’s not working. It’s just not working. And your biggest return is going to be to use that money to invest in yourself. And you are going to be investing in yourself right now to get out of the debt cycle, but you’re also going to be investing in your future self that doesn’t have debt and how they think about money. You’re going to be investing in the person that knows how to save money. You’re going to be investing in the person that’s like, I feel really confident going on this trip knowing I get to pay for it with cash. And by cash I mean I put it on my credit card, then I paid my credit card off. I was just able to buy a home because of the fact that Keina has shown me exactly what to do with my money. Like my client, Janine, she told you on her episode last week, she had actually paid off her debt before coming to work with me and then she put coaching on a credit card to work with me. We paid it off before we even finished our five months together. But I want to say that some of it was because she used her tax refund like we started working together around March or April.
But in her story, we worked together, gosh, almost three years ago now and the results that she has gotten from the one investment that she made, it far supersedes any of the results that she would get if she had just taken her tax refund and tried to hoard it or try to pitch it all towards like paying off debt. And when you work with me in my five month partnership, like we are going to be able to get into the nitty gritty of what is happening with your finances. I am literally going to tell you exactly where your money is going. I’m going to help you be honest with your numbers. Just like I was telling my client was like, yeah, ignore the dog walker. For me, I’m like, oh, you have a dog walker. We need to be thinking about how do we put the dog walker into the plan.
And so those are the things that they’re your everyday being, it’s your everyday oxygen. You’re doing things with your money every single day and you don’t know the impact that has on you financially. And it’s okay that you don’t know that. I want you to basically get your own personal finance degree and just apply to work with me. We get to spend your tax refund on you in a way that next year when your tax refund comes, it’s going to be able to go all towards fund. The next time that you get a raise at work, you’re going to feel the impact of your work. So you’re basically, you’re taking your tax refund and you are going to double the size of that. You’re going to triple the size of that. You are going to 10X your tax refund because of the fact that you’re investing in yourself and you’re giving yourself that financial confidence that you desire so you can start spending money drama free.
So if you’re like Keina, that’s it, that’s what I need. You can go to Wealthovernow.com/appointment, apply to work with me, and you’ll get time on my calendar. We’ll have a 60 minute consult. I’ll ask you a ton of questions and I’ll tell you exactly how I can help you and we’ll go from there. So thank you so much for tuning in today. I look forward to being with you next week, and I will talk to you later. Have a good one.
Outro: Thank you so much for listening to Money Files. If you’re ready to take the next step to reach your financial goals, head to www.wealthovernow.com/appointment and let’s get started.
