As a starting spot, it’s important to understand what it means to receive a tax refund. Receiving a tax refund simply means that a taxpayer paid in more tax throughout the year than they needed to. It is not necessarily a reflection of actually owing less in tax – it is simply a reflection of the amount of withholding that took place. Sometimes, a large tax refund can be a negative thing. For a family that struggles with monthly cash flow, would it be better to have an extra $400/month in cash, or better to receive a $4,800 tax refund one time per year?
In the event that you do receive a refund, it’s important to apply some of the principles that we’ve already discussed. Utilize the refund to enhance your emergency fund or pay down any outstanding consumer debt. If those two items are taken care of, the tax refund can be an opportunity to enhance long-term savings goals. You may also want to consider enhancing your giving by using some of your tax refund for that purpose. Remember – we can never outgive God!