If You Need Your Tax Refund to Do This, Your Finances Need an Overhaul

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Your tax refund really shouldn’t be money you’re banking on heavily. Read on to see why. [[{“value”:”

Many people have already filed their 2023 taxes, even though returns aren’t due until April 15. And a big reason so many tax filers are motivated to submit their returns ahead of the deadline is to expedite their refunds.

The average tax refund paid so far this year by the IRS is $3,213. That number could change as the season moves along, but all told, it’s unlikely to be a small one.

You may be relying on your tax refund to catch up on late bills or cover existing ones that haven’t yet been paid. But if that’s the case, your finances may need a pretty big overhaul.

You can’t bank on a tax refund

Maybe you’re someone who commonly gets a tax refund year after year. Even so, there may be certain years when you’re not due a refund. And there may be years when your tax refund comes in much lower than it usually does.

Many different factors determine whether you get a refund and how much of a refund you’re eligible to receive. You could have a year when your income rises or you earn more money in your brokerage account via dividend payments and capital gains, for example.

Because of this, it can be difficult to estimate your refund ahead of time. It’s not a good idea to count on getting a refund, and to take on expenses with the assumption you’ll use your refund to cover those costs.

A better approach to your finances

If you have outstanding bills you can’t pay until your tax refund arrives, or if you have upcoming bills you’re counting on your refund to cover, then you may need to rethink the way you manage your finances. Even though a tax refund is the IRS’s way of returning money to you that you’re owed, it’s not money you should count on the same way you can bank on getting a certain sum of money out of your paycheck. Instead, you should treat your refund as extra money you can use for important financial goals — not as money to pay everyday expenses.

If you can’t cover your regular bills based on your paycheck alone, you may need to reassess your spending and cut back in areas where there’s room to do so. That could, for example, mean getting a roommate if your rent eats up so much of your paycheck that there’s barely room left over for things like groceries and utility bills.

You may also want to consider picking up a side hustle until your salary at your main job increases. That way, your side gig can serve as reasonably steady income — or at least far more predictable income than a tax refund.

It’s a great thing to use your tax refund to save toward an important goal. But if you need your tax refund to pay your basic expenses or catch up on expenses you’ve already taken on, then it’s time to change the way you approach your finances. Remember, if your refund doesn’t come through, you could end up with serious debt on your hands. And that’s something you really don’t want.

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