Did you know that about 8 out of 10 tax filers will receive a refund with the average refund being $2,800 (CNN Money)? If you are a person who expects to receive or has received a refund this year, then now is a great time to use your tax refund to catch up on your financial goals and priorities. If you take the time now, you will reduce your stress and have more money to do things later in the year. For example, there was a story that went viral about a single mom making minimum wage who used her tax refund to pay her rent for the entire year. Check the story out here on CNBC. This story really inspired me to write this post. Here is what Christina Knaack said on Facebook about why she decided to use her tax refund to pay her rent.
“I got back $5600 on my taxes. Instead of buying my kids the latest Jordans or fancy electronics I paid my rent for the YEAR. I’m a single mom and I do it all by myself on a minimum wage job. I know that a roof over my kids’ head is what’s important. My kids don’t want for anything because my priorities are straight. And this also means I will have that extra 450 a month to do things with my kids.”
I love this story because Christina knew that paying her rent would give her the peace of mind that she knows that her children will have a place to sleep regardless of what happens in 2017. She also positioned herself as a positive money role model for her children. Additionally, she was able to free up $450/month that she would have otherwise paid for her rent. Now, she can say “yes” more to her children and not have guilt about spending the money. Here is the good news, you can do this too by making smart decisions about how you spend your tax refund this year. Keep reading to learn how.
Step 1: Get clear on your goals and your needs for the year.
One of the primary reasons people don’t accomplish what they desire to do or live the life of their dreams is that they aren’t setting clear goals or they aren’t setting the right ones. We set lofty goals without defining specific milestones and eventually we give up because we get discouraged with our lack of progress towards the end result. We may not necessarily lack the discipline to achieve the goals; we merely start the wrong way. Without a method to measure progress, it becomes easy to get discouraged.
If you are wondering what you should work on or haven’t taken the time to set clear goals, then you need to do that before you spend your tax refund. This is essential because this will be the backbone of how you even approach spending the money. For example, you may want to do something cool like go on vacation, but if you have credit card debt and no money in the bank, then think about how increasing your savings and paying off debt will ultimately allow you to live the life that you want without the guilt or the stress. Here are the 5 steps that you should use to approach your goal setting.
1. Start With Why.
This is extremely important, as this is the reason why you want to make the change. Think about how you will feel when you achieve this goal. Also, think about the feelings that you want to run from and the life that you want to create. This will provide the clarity that you will need to identify your “why”. Your “why” is extremely important because when times get hard your “why” will give you the motivation needed to keep going.
2. Keep Yourself Accountable.
When setting goals, use the SMART format. The SMART format allows you to set goals that are Specific, Measurable, Actionable, Relevant, and Time-Bound. When you set SMART goals, you are able to hold yourself accountable because you have clearly defined exactly what you want.
3. Create Your Long-Term Vision.
Life and financial changes require a long-term vision. You want to move beyond day-to-day thinking and create a vision for the future that you can use to guide your actions. Think about what you want your life to look like in the next 5, 7, and 10 years. Once you know that, you can determine what you need to do to make that vision a reality.
4. Determine Where You Are Now.
Once you determine where you want to go, determine where you are now. This will serve as your starting point and dictate the initial steps that you must take. When you are evaluating your starting point, collect your current financial information and engage in reflection to understand your current mindset.
5. Set Short-Term Goals.
Short-term goals are the building blocks of your long-term vision. Take your long-term vision and then determine the actions that you need to take to achieve that goal. For example, if your long-term vision is to be debt free in 10 years, then calculate all of your current outstanding debt, and then determine how much you will need to pay each month in order to be debt free in 10 years. That total monthly payment will be a line item in your budget. Remember that your short-term goals should also be in the SMART format.
Step 2: Prioritize your goals
Once you figure out what you want, then the next step is to determine the order in which you accomplish your goals. You don’t have infinite money (at least right now, but you still need to claim your abundance in the name of Jesus!) so you need to determine what you want to work on first. You can do this by looking at your vision and then revisiting your short-term goals. Your short-term goals, remember, are the small steps that you need to take to get to your long-term vision and goals. When you prioritize, think about which short-term goals will allow you to make the most progress towards your vision. This will be the goal (or goals) where you will spend your tax refund. If you are interested in really diving deep on the theory, benefits, and methods of prioritization then check out “The ONE Thing” by Gary Keller. This book will help you to focus on the one thing that will be the guiding priority in your life and how to create actionable goals and plans to support your one priority.
Step 3: Avoid distractions and stay on the path to tackle your goals first
One of the benefits of using your tax refund to achieve your goals is that it will provide more peace of mind throughout the year. You can’t see the future. You don’t know what you will encounter during the year, and since you don’t know the future, you must take the time to ensure that you position yourself to have financial security.
For example, consider the following scenario, Sara created a goal to fund her emergency savings account. To support that goal, she included her monthly savings goal in her budget. During tax time, she received a $3,500 refund, but since she was already making regular payments to her savings account, she decided to go shopping with the money. She thought, “What’s wrong with spending my tax refund if I’m already contributing to my goals?” This may be true, but a couple of months later she unexpectedly, lost her job and not only is she no longer contributing towards her goals but now she is spending her existing savings, she’s stressed out about how to meet her expenses and her children’s needs as frantically searches for a new job. She wishes that she had her tax refund back and a fully funded emergency savings account to help cover her expenses until she finds another job.
I share this example to reinforce the point that no one knows what the future holds so you must make the best decisions with the information that you know now. This is a great time to get ahead of your goals. There will be many temptations along the way, which could include:
- Your children may want certain shoes, clothes, or other things
- You may want to reward yourself for working hard throughout the year
- Something else may seem more fun
- Your favorite store is having a sale
- Another mom purchased her children the latest and greatest technology
There will be so many things competing for your money, but you must stay focused on what matters. It doesn’t mean that you can’t do anything fun. Think about the bigger picture and what spending now means for your future. Christina gave herself the gift of peace of mind and the ability to do more for her children throughout the year instead of once a year. Stay focused on your vision and your goals and use those to help guide your spending decisions.
Leave a comment in the Phenomenal Moms Facebook Group to let me know how this helps you!
Aisha Taylor is a single mom of twins, personal financial coach, work from home entrepreneur, and #1 Amazon Best Selling Author of the book “5+5 FNPhenomenal Ways to Save $100 This Week Without Killing Your Lifestyle.” Aisha has been featured in ESSENCE, Jet Magazine, and Black Enterprise. She is also the Founder of FNPhenomenal (Frugal –n- Phenomenal), a movement designed to help single moms create a vision for their lives, craft a financial strategy to support that vision, and show them that phenomenal living is possible. It’s time for you to be Financially Phenomenal!
Transform Your Finances
Enter your email address to get my 5 proven, action steps to transform your money.