What To Do With That “Extra Money” From Your Tax Refund

Almost 83% of tax returns will result in a refund.  Based on your withholdings and tax bracket, tax season might be your favorite “holiday” after Christmas. You may already have big plans for your refund, but let’s go over a few smart ways you can make this money work for you.

Before we get started, repeat after me: “This is not extra money.” Say it two more times for good measure. Considering your refund (or any new funds that come your way) “extra money” is a form of mental accounting, a tendency to place value on income based on its source. At Desnoyers CPA, we’re all about creating healthy financial habits, and it’s crucial to place high value on every dollar in your possession.

It’s also important to consider the way we think about money. For most of us, there’s a good deal of time, effort, and stress that go into making income. If there are opportunities to apply the least amount of effort and energy while still increasing our income, we should take full advantage. In other words, you work hard enough. Let your money make money for you.

Here’s a quick example: you could take the “extra money” in your tax refund and go finance a few new pieces of furniture, but you’re then left with a $200 bill for the next two years…


You could put your hard earned money in a high-interest, short or long-term CD (Ally Bank has a great option), and your money is now making money. Think of your dollars like soldiers being enlisted and deployed out to secure additional income.

For the purpose of this article, we’re not going to call it “extra money”. We’ll refer to it is as new income.

1.) because it’s not “extra”; and

2.) because we want it to generate even more new income.

So, here are a four smart things to do with your new income:

Put more money into your retirement accounts.

This could be your employer-sponsored 401k or a personal IRA. Though you’re usually unable to deposit directly into a 401k account, you can always increase your contribution for a while (which also lowers your taxable income *raises the roof*) and use your new money to cover expenses. There’s a chance you’ll get a larger refund next year thanks to the new tax laws, and you’ll need to decide which account is right for you. Just know that your future self will appreciate the sacrifices you make today.

Invest in your own business ventures.

Use your new income to start that blog or t-shirt company that’s been on your mind all year. Maybe you can finally pay to get that app you’ve been telling everyone about developed. In 2018, many of us cannot afford to *not* have a side venture.  With the right plan, some of us can even turn our hustles into full-time gigs. Regardless – even if it only earns you an extra $150 a month – your new income has potential to generate new income, and that’s what’s most important.

Invest in your professional development.

Maybe your full-time job is too involved for you to be able to put energy towards anything on the side. Perfectly understandable. Think about investing in ways that will help position you for a higher salary. Spend the money on that conference you’ve been eyeing, that training with the certification credits you need, or that course that will help you develop a greater understanding about the work you do. Not only does it show your superiors that you’re dedicated, you also prove to yourself how serious you are about moving to the next level.

Pay. Your. Debt.

…more specifically, your high interest debts. Monthly finance charges are devouring your minimum payment making it very difficult to pay down a large balance. There are some things you can do to lower your interest rate, but it’s important you pay as much as you can whenever you can to remove that weight off of your credit and your sanity. While this particular option is more intrinsic in nature and isn’t a direct “new income generating new income” scenario, keeping your debt-to-income ratio low and your credit score on track increases your overall net worth.                                                                                                                                                                                                                  

Taking one or all of these steps is a great way to not only win kudos from your future self, but also to create those healthy habits surrounding your money. Think about your current financial weaknesses and consider an option that challenges you. Maybe money burns a hole through your pocket, and spending money on new business cards for your fitness blog is the most attractive option. Try putting more money aside to develop that habit of sacrifice. If it’s the other way around, and you never find yourself spending, put a little money towards a professional development course as a way to splurge on yourself.

Remember, there’s no such thing as “extra” money. Whether it’s a gift or a payment for back-breaking yard work, you should cherish it just the same. A wise Wayans brother once said, “Mo money, mo money, mo money!”

Written by Desnoyers CPA

Desnoyers CPA

Known for her friendly, outgoing nature and her rare talent for financial foresight, Lydia Desnoyers has been serving individuals and small businesses in Florida since 2010. After earning her Master’s Degree in Accounting from Nova Southeastern University and her Bachelor’s Degree in Accounting from Florida State University, she became a Certified Public Accountant and a Certified Fraud Examiner.

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