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Banking & Finance | Financial advisor: Smart saving is better than spending a tax refund on material items

Banking & Finance | Financial advisor: Smart saving is better than spending a tax refund on material items

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It is a perennial part of spring. Along with the crack of the bats at baseball spring training and wiping the sleep from our eyes after turning the clocks ahead, advertisers are shouting their usual spring refrain: “It’s our tax season sale!” “Use your refund as your down payment!” “Your tax refund can put you in a new car!”

It all sounds really enticing. Especially given that the IRS reports an average tax refund this year of just over $3,000.

Not so fast, cautions a financial advisor with Legence Bank. Paula Rightnowar, who assists customers with investments at Legence locations in Marion and Mount Vernon, says taxpayers who are getting refunds would be better served to do something that makes a difference over the long term.

“First, I’d like to see people who get a refund pay off any credit card balances they may have,” Rightnowar says. “That’s because generally credit cards have higher interest rates and I consider credit cards to be bad debt.”

She says that most Americans fall into the temptation of looking at income tax refunds as a bonus or “free money” from the government when, in fact, they are actually refunds — money each of us has already paid to the government in the form of withholding from our paychecks throughout the year.

While some financial advisors and tax planners say that any refund is too much — meaning that taxpayers have basically “loaned” money to the government at no interest — Rightnowar says a refund is not necessarily a bad thing.

“I am not a tax advisor, but for instance in an early distribution of retirement, I always recommend that people do withholding because then they know that they are paying enough and not facing a tax bill when it comes time to file a return. I suggest people ask their tax advisor to explain to them how much they should be withholding and what they should be withholding from,” she explains.

Once credit cards and other high-interest debts have been paid with a refund, Rightnowar suggests investing. “For someone who is just starting out, I’d suggest they look at a good balanced fund,” she says.

A balanced fund is a mutual fund invested equally in both company stocks and governmental and other bonds. She says it is a good long-term investment. Basically, it is a collection of various bond notes and company stock purchases, managed and packaged in a single investment.

She says that younger investors — those in their 20s for example who are perhaps more tempted to make refund-driven impulse purchases — might even consider a more aggressive investment approach, perhaps with a growth stock fund.

“The pro to something like this is that in the long-term it is probably going to out-perform most other investments. The downside is that we could have a market decrease again, so in the short term it could not do as well,” she says, adding, “but the market will always out-perform a fixed product like a CD or savings account.”

She also suggests that when it comes to preparing and filing tax returns, a paid professional is a worthwhile investment. “I’d recommend that people have a tax advisor. I know you can go online and do things, but having a professional is really a good idea. It might lower what you have to pay in taxes and maybe, increase your refund.”

Regardless of amount taxpayers are getting back, Rightnowar says they should try to avoid the temptation to spend all of the refund. “Rather than the immediate gratification of a new flat screen TV, I’d like to see people approach their tax refund with more of a long-term perspective,” she says. “You know, in 10 or 20 years, that TV probably won’t even be around. At best, there will be something new and better.”

But if you just can’t resist a little refund retail experience, Rightnowar urges to proceed cautiously.

“Here’s what you can do,” she adds. “Put a significant dent in credit card bills or other expenses you have, then take some of what’s left of your refund, go out and enjoy it.”

Aur 'DaEnergyMon' Beck, is a NABCEP Certified Solar PV Installer™ with AES Solar in Carterville and started educating himself about renewable energy as a teenager even before (at age 15) he moved into a camper in his parent's driveway to live off grid solar and ended up living off grid for 18 years. Aur understands that living how he does makes it very easy to advocate for a life of simpler living, energy efficiency and renewable energy. His name Aur (pronounced "or") means light or to enlighten in Hebrew. Can be reached at or 618-988-0888.


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