Rationing Your Refund

Whether paying it down or paying it forward, area residents find unique ways to spend a $500 tax refund.

By Kate Rader

According to a new report from the independent National Taxpayer Advocate (NTA), about three-quarters of Americans were owed an income tax refund in 2020, receiving about $2,800 on average. What’s in Your Neighborhood was curious to know where that extra cash ends up. So, we asked area residents how they were spending their refund dollars, then asked Financial Coach Alissa Locke to offer some tips on how to determine what could also work for you.

What would YOU do with a $500 tax refund?

Popular answers included putting the money into savings, paying bills, or lowering credit card balances. Others would opt to invest the extra cash, hoping for a long-term return. Michael Maginnis, a 41-year-old educator from Greencastle, says he usually invests the money he receives from his tax return. “With $500 back, I’d probably invest it in mutual funds.” 

Dawn Eckstein, an accountant from Rockville, Md., (who is not a financial advisor) says that adding her money to “an investment account such as a REIT (Real Estate Investment Trust), cryptocurrency, and/or stock purchase” could help her build additional passive income.

Paying for a child’s college tuition is at the top of some parents’ financial checklists. August Nemec, 47, an IT professional from Elkridge, Md. says he’d invest in cryptocurrency to try and quickly multiply his money. “It’s riskier but growing at a fast rate. I’d put any profits into my 16-year-old son’s college fund. Just $500 could make a huge difference in saving for college.” 

Several people considered using all or part of the $500 to “pay it forward” by surprising a stranger through a random act of kindness, donating the money to a nonprofit, or even to a political candidate. Chad Beadle, 49, event coordinator for Beadle’s Make Me Laugh Comedy Tour in Hagerstown, would use his $500 to “help out in the Midwest with the families affected by the Kentucky tornado.”

Robin Roberson, the Executive Director of the Community Free Clinic in Hagerstown until retiring in 2018, says she would invest in the futures of area children. “I would donate it to Bester Community of Hope. I’ve seen firsthand the work they’ve done and continue to do in the Bester community. They have brought so many opportunities and successes to children and families there that will have a lifelong impression.” 

Lois Poseno of Littlestown, Pa., believes in using her good fortune to help others, and recalls some of the ways she and her late husband Roger enjoyed passing it forward. “Roger always liked to provide a family with one complete Thanksgiving meal every year. We would shop together, and he was like a little child in the toy store putting all the food in the cart. He really looked forward to doing that.” Most recently, Lois provided new outfits to a family raising five children. “I wrote (the mother) a private message and asked if I could please be a part of their family photo shoot by providing a check for the children’s outfits. She was very humble but also very grateful and sent me a picture of the girls in their outfits.”

While there are all kinds of ways to leverage an unexpected refund, some opted to invest in family. Lauren Corbett of Frederick would take her boys to Legoland Florida Resort, while Mary Ellen Mitchell, a nonprofit consultant in Frederick, would connect with people she’s been missing. “I did a driving vacation this summer and saw people and places I haven’t seen in decades. If I were to get $500 in a tax refund, I’d use it to go see some of my older relatives and share time with them,” she says.

AN INTENTIONAL MONEY MINDSET

Alissa Locke, a Financial Coach from Money Mentor Group in Frederick,  became passionate about personal finance after learning how to turn her own financial life around. As a young, divorced, single mom living paycheck to paycheck, she changed her mindset about money—creating a financial plan that helped her take control of her finances and fully retire in her early 50s. 

As a financial coach, Alissa helps people pay off debt and stop living paycheck to paycheck by teaching them to understand their relationship with money, improve their money habits, develop a workable spending plan, and gain confidence around their finances. 

When it comes to deciding how to use tax return money, she says that most people struggle with what they feel they “should” do versus what they would like to do with it. 

Alissa says the most important thing is to be intentional with your decision. “A year from now, if someone were to ask you what you did with that $500, would you be happy with your decision? Be thoughtful and intentional. Make sure you’re not sacrificing what’s most important to you long-term for what’s important to you right now.

Alissa suggests these tips to helpguide your decision.

1. Know what you truly value in life. Does what you do with your money align with your values? For example, if having financial security is a priority for you, make sure you have an emergency fund and are saving for retirement.

2. Have a budget. Know exactly where your money goes every month. Alissa says that most people know what their fixed expenses are, but what they don’t know is how much they’re spending on variable expenses like gas, food, or what she calls “whammies”—items that only happen periodically, like birthday gifts, automobile expenses, or kids’ activity fees. “If you know your kids will need braces or your dishwasher is on its last leg, put that money away—even in a separate account—so you won’t have to put that expense on your credit card.”

Amanda Boyer-Everett, an HR professional from Hagerstown jokingly says, “Let’s just pick this refund concept apart. If I were to receive a $500 tax “refund” it would mean that I overpaid the government my share of tax burden in the first place. So, in all actuality, it’s been my money all along! If I were to receive a refund of $500, I would probably send the IRS an invoice for the interest it would have earned during the calendar year!” While we all might wish we could do that, Alissa does suggest taking a closer look at how much tax is being withheld from your paycheck if you’re getting a large refund every year.

This story references opinions and is for informational purposes only. It is not intended as legal, tax, investment, financial, or other advice. Seek a duly licensed professional for investment advice.  

 

Background photo created by jcomp – www.freepik.com

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