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5 Things You Shouldn’t Do With Your Tax Refund

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.


Tax season is upon us, meaning a refund might be headed your way. No doubt you’re excited by the idea of a cash influx, but this isn’t free money. “Most people think their tax return is a gift from the government,” said Paula A. Norby Krueger, owner of Norby Krueger Tax & Bookkeeping Services in Wahpeton, N.D.

Of course, this isn’t true—tax refunds are granted because too much money was withheld from your paycheck, meaning you paid more in taxes than you actually owed. Getting some of this money back is a unique opportunity to further some of your financial goals. Here’s a look at good and bad ways to spend your refund check.

5 Things You Shouldn’t Do With Your Tax Refund

1. Make big purchases that require payments. Norby Krueger said it’s unwise to purchase anything with a payment because you’re just incurring new debt. The money from your tax refund might cover the first few payments, and you’ll be on the hook for the rest.

This category is broad, but could include furniture, electronics or even installing a swimming pool in your backyard. One of the most common offenders? Cars. According to Kelly Blue Book, the estimated average of a new car is $36,978, so while your tax refund may make a nice dent, it would be a mistake to ignore your future payments.

2. Splurge. “You’re starting to see retailers push promotions with online tax preparation companies that allow consumers to roll their refunds into gift cards,” said Chris Jackson, CFP and founder of Lionshare Partners, a Los Angeles-based, fee-only financial planning firm.

It can be tempting to spend your tax refund on an expensive handbag or a big-screen TV, but think twice about that. The government is essentially returning money you earned, so don’t waste your hard-earned cash.

3. Take a carryforward. A tax carryforward allows you to save your tax refund to pay any taxes you’d owe the following year. If you pay quarterly taxes, this may be a good idea. But for most Americans, it’s not the best use of the funds.

“Unless you are incapable of not spending your money, do not carryforward the tax refund into the new year,” Jackson said. “That is an interest-free loan to the government.”

“Instead, you should pay down debt, max out retirement plans or increase emergency funds,” he said.

4. Nothing. Allowing your tax refund to sit in your checking account might seem like a responsible move, but it’s actually unwise. If it’s just sitting there, you’ll likely be tempted to use it.

Even if you have seriously impressive self-restraint, Jackson said that cash is an asset class that can and should be managed. Take advantage of high-interest savings accounts or consider a short-term bond ladder — i.e., a bond portfolio composed of different maturities.

5. Make hasty investment decisions.“Investors have to first identify what their goals are in order to select appropriate investments that make up their overall asset allocation,” said Levi Sanchez, CFP and founder of Millennial Wealth, a Seattle-based fee-only virtual financial planning firm.

Whatever you do, don’t just get caught up in investment hype, especially if you’re just entering the market. Take the time to learn about strategies that are the best for your financial situation, and consider reaching out to a financial advisor for guidance. Sanchez advises investors who don’t want to actively manage their portfolios on a weekly or monthly basis to consider passive investment vehicles, like index funds and ETFs,  i.e., electronically traded funds.

10 Things You Should Do With Your Tax Refund

“If you receive a nice windfall of cash from your tax return, consider how it can impact your financial situation if you put it to good use,” Sanchez said. “Whether that’s paying down high-interest debt, saving for a home down payment or putting [it] toward long-term investments.”

Improve your financial situation by using your tax return for one of these good causes.

1. Save for retirement. If you’re not saving as much for retirement as you’d like — or aren’t at all — take this opportunity to pad your account. In an ideal world, you’ll have 25x your annual expenses in your retirement account when you retire.

“If you are maxing out your tax-deferred vehicles — 401k and HSA — then use those tax savings to invest in a Roth IRA,” Jackson said.

2. Contribute to a 529 plan. “A lot of consumers are ignoring their retirement in lieu of college funding when they can do both,” Jackson said. “They can fund their 401k and use the tax refund to fund a 529 plan.”

If you’re not familiar with 529 plans, these tax-advantaged educational savings tools allow you to put money aside for educational expenses. Two types of plans are available — prepaid tuition plans and education savings plans — and all fifty states and the District of Columbia sponsor at least one of these options, according to the U.S. Securities and Exchange Commission.

3. Start an emergency fund. According to a report from the Federal Reserve, 40% of Americans do not have enough cash on hand to cover a $400 unexpected expense. If you’re lacking an emergency fund, or if it isn’t equipped to handle six to 24 months of expenses, Jackson recommended using your tax refund to pad your savings. Being prepared for unexpected costs will bring you peace of mind and can keep you from going into debt.

4. Invest in yourself. “Your ability to convert human capital into financial capital is the key to economic freedom,” Jackson said.

He advised boosting your human capital by improving or acquiring new skill sets. For example, you might take an online course that will give you the credentials required for a promotion at work.

5. Pay off credit card debt. In 2018, Americans paid $110 billion in credit card interest and fees, according to a MagnifyMoney analysis of FDIC data through September 2018. If you’re in debt, this is an opportunity to pay it down or maybe even eliminate it.

And once you do, stick with it. “Make a commitment to yourself not to go back to using the credit card,” Norby Krueger said. “Get out of debt and stay there.”

6. Make home improvements. Fixing up your home in a manner that adds equity can be a sound investment, Norby Krueger advised. A few projects that add value to a home include updating the kitchen, finishing the basement and making the house more energy efficient, according to Consumer Reports.

7. Save for a down payment on a home. As recommended by Sanchez, putting your tax return toward a down payment on a home can be a wise investment in your future. If you’re buying your first home, your down payment can be as low as 3.5% of the purchase price with an FHA loan. Most lenders offer conventional loans starting at 5% of the purchase price, but private mortgage insurance is required when you put down less than 20%.

8. Opt for experiences over things. If you want to use your tax refund for something fun and your finances are in good shape (well-funded emergency fund, no credit card debt, on track for retirement) consider traveling instead of shopping. Experiences create memories that last a lifetime, while most objects have a shelf life. Just make sure your vacation doesn’t exceed your budget.

9. Make charitable donations. If you truly don’t need the money, consider donating all or part of your tax refund to a charitable cause close to your heart. As an added bonus, if your contribution meets IRS requirements and you can itemize your taxes, you might even be able to write it off as a deduction.

10. Make an extra mortgage payment. Own your home outright faster than planned by using your tax refund for an additional mortgage payment. Make sure the second payment is put toward your loan principal.

Receiving a check from the IRS is exciting, but don’t forget this is money you worked hard for. Wasting money never feels good, so think long and hard about the best possible use for your tax refund.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Laura Woods
Laura Woods |

Laura Woods is a writer at MagnifyMoney. You can email Laura here


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Here’s Why Single Women Are Buying More Homes Than Single Men

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.


Right after she turned 30, public relations pro Wendy Hsiao put in an offer on a cute brick townhouse in Atlanta. “For a lot of my friends, being an adult started either when you got married or had a baby,” she said. “I chose to buy a house.”

Why did she buy? She felt ready for a major life change, considered buying to be a smart financial decision and wanted a yard for her Pomeranian named Georgia. “I felt like it was time to make a place my home,” Hsiao said.

Her story is one example of a growing trend: the rise of single female homeownership. Single women are far more likely to become homeowners than single men, according to a study on singles owning homes by LendingTree, which owns MagnifyMoney. In fact, single women own 22% of homes on average, while single men own less than 13%.

This “gender gap” stems partly from the fact that single women prioritize homeownership when setting life goals. In fact, 73% of single women list owning a home as a top priority compared with 65% of single men, according to the 2018 Homebuyer Insights Report from Bank of America.

Single women are “skipping the spouse and buying the house,” according to the Bank of America report, which found that single women rank homeownership as a goal above getting married (41%) and having children (31%).

From homemaker to homeowner

While there’s still work to be done, women have taken huge steps toward professional and financial independence. Homeownership in particular contributes to economic stability, so it’s great that more single women are buying homes. There’s no doubt the increase in the number of women in the U.S. workforce, a figure that has more than doubled since 1975, has contributed to the trend. Here are some other driving forces behind the rise of single female homeownership:

Homeownership empowers women. Homeownership offers a place to live, stability and a way to build wealth, so it’s no surprise women view owning a home as empowering. In fact, 31% of single women (vs. 23% of single men) feel empowered when thinking about buying their first home. A licensed real estate agent in Chicago, Martina Smith bought a condo in her dream neighborhood of Streeterville after she broke off an engagement a few years ago. Her budget only allowed her to buy a “fixer-upper,” but she got a great deal and renovated her place. “It’s been very rewarding and empowering,” she said. And she thinks it reflects a bigger national trend. “We’re seeing more women taking charge,” Smith said.

Women are becoming more educated. Over the past few decades, women have become more educated than men. In 2017, 38% of women and 33% of men ages 25 to 64 had a bachelor’s degree. In that age group, 14% of women and 12% of men had an advanced degree. And women are putting off marriage to pursue that education, according to the 2018 Women in the Housing & Real Estate Ecosystem report. Educational attainment has a positive impact on homeownership rates.

Women are done waiting to marry. There’s been a cultural shift where women no longer feel they need to wait until they pair up to embark on certain aspects of “adulting,” said Kelley Long, a CPA and certified financial planner with Financial Finesse. “I will never forget a friend’s dad chastising me for doing ‘nesting’ things like buying nice furniture before I was married because of his perception that you just don’t do things like that until you’re married,” Long said, adding that women are “rejecting that idea because it’s not true.” If you want to marry in the future, the right partner will likely be impressed that you were financially secure enough to buy a home on your own, she said.

Single moms want a home base to raise kids. “Oftentimes, when people buy homes it’s for lifestyles reasons,” said Tendayi Kapfidze, chief economist for LendingTree. Getting married is one big reason, but having children is the other, he said. About 21% of U.S. kids live with single moms, a number that has almost doubled since 1968. In contrast, just 4% of kids live with single dads. “Children prompt people to buy homes,” he said. “So that might be one of the factors at play.” And it’s not just kids. As many as eight in 10 caregivers for elderly parents are women. The median age of a single female buyer is mid-50s, points out Jessica Lautz, vice president of demographics and behavioral insights for the National Association of REALTORS. A single female homebuyer “may be coming from a past relationship and purchasing a new home for herself, her children and her parents,” Lautz said, adding that single females are “willing to make sacrifices” to purchase a home.

So what does the future hold for single women owning homes? If marriage rates among all U.S. adults continue to drop, it’s likely the number of single women purchasing homes will rise even more, Lautz said.

Turn your homeownership dreams into reality

Strict lending standards can make it more difficult to qualify for a mortgage on a single income. Considering women also only make 80% of what their male colleagues earn, getting to a financially secure enough position to afford homeownership may feel daunting. Here are three tips for single women looking to buy a home of their own:

  1. Prep your finances for homebuying. It’s important to check your credit and your debt-to-income ratio before you start the homebuying process. If you spot problems, work on increasing your credit score and paying down your debt before you try to get preapproved for a mortgage. Getting the best possible rate can save you money over the life of the loan, which is especially important when your household depends on a single income. The upside is that single women have complete control and don’t need to worry about anyone else’s shaky credit or loads of debt. “If you’re in a couple, somebody is going to be dragging the other person down,” Kapfidze said.
  2. Build your nest egg before you buy. Forty-eight percent of women say they haven’t purchased a home yet because they haven’t saved enough for a down payment. But that’s not the only savings barrier to breach before taking the leap into homeownership. “Make sure you have a robust emergency fund,” Kapfidze said. Because single homeowners are on their own, they should set aside at least three months of mortgage payments as part of their emergency fund, Kapfidze suggested. “If you’re single, you’re the only one with income coming in to pay the mortgage,” he said.
  3. Pick a home that comes in under budget. Single women have lower household incomes than single men, so they may need to consider buying a smaller home, taking on a house that needs some work or settling in a lower priced neighborhood. The good news is that single women may be doing exactly that. In fact, the average home purchased by a single woman cost $173,000 compared with over $190,000 for a single man. Single women “may need to make price concessions when purchasing to find a home for themselves and their families,” Lautz said. And buying less house than you can afford can help you make your mortgage payment more easily if you hit financial hard times in the future.

Finally, it’s normal to feel stressed when you think of buying a home. In fact, more women (40%) than men (30%) feel overwhelmed by the idea of homeownership. But even though the homebuying process was scary, Hsiao said she has zero regret about buying a home of her own: “If you love the house, it’s 100% worth it.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Allie Johnson
Allie Johnson |

Allie Johnson is a writer at MagnifyMoney. You can email Allie here