On Tax Refunds

​Last week, I wrote about using your annual cost-of-living pay adjustment to increase your savings rate—essentially, keeping your lifestyle the same while directing small income bumps like these into savings. Over time, this builds your financial strength without feeling like a sacrifice.

But there's another key habit to develop this time of year: how you handle your tax refund.

For many, the reflex is to see that lump sum—if you’re getting one—and immediately start making plans for how to spend it. But that’s a backwards way to manage money.

Instead of deciding how to use money once it arrives, flip the script: have a standing plan that dictates how you handle all extra income, including tax refunds. When you make saving your default, you gain three major advantages:

A Clear Decision Framework – When all windfalls automatically go to savings, you’re forced to evaluate your priorities from a big-picture perspective considering your savings as a whole, across the months and years, rather than making one-off spending decisions.

Built-In Friction – If spending is your first instinct, having a system where refunds and other bonuses land in a separate, high-yield savings account (HYSA) creates a delay. I recommend using an online HYSA with a 2-3 day transfer window to your usual checking account. That waiting period gives you time to make better choices rather than making impulse purchases.

More Opportunities – When scattered income sources—your tax refund, two extra biweekly paychecks a year, monthly savings transfers, and earned interest—are combined into one savings pool, they become more powerful. Instead of just a one-time boost, you’re building financial flexibility that allows for better planning and bigger goals for the long haul.

As I said last week, saving isn’t about locking money away—it’s about having it available for what you need most when you need it, and making intentional decisions for your future.

This year, try sending your tax refund straight to savings. Don’t think about how to use it.

Let it sit, let your financial picture come into focus, and then decide the best way to put your total savings system to work for your entire bigger picture.