125: What to Do With Your Tax Refund (Before You Waste It)

Tax season is here, and if you're getting a refund, this episode is for you.

Jessica and Brandon break down how to use your tax refund strategically instead of treating it like random bonus money. They unpack the “free loan to the government” debate, explain why some people intentionally aim for a large refund, and walk through practical ways to put that money to work.

Inside this episode:

• How to think about tax refunds the right way
• Emergency funds and debt payoff priorities
• Planning for upcoming expenses
• When investing your refund makes sense
• How to adjust your W-4 if you want to change your refund next year
• Why planning is something you actively do, not something you set and forget

Whether you’re getting $200 or $5,000 back, the goal is simple: be intentional.

Your money should have a job. This episode will help you decide what that job should be.

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Money, relationships, and the mindset to master both. Hosted by financial advisor Brandon and his wife Jessica, The Sugar Daddy Podcast breaks down how to build wealth, unpack old money beliefs, and have real conversations about love and finances. Their mission? To help couples and individuals grow rich in every sense of the word: emotionally, relationally and financially.

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Transcript

Why Refunds Happen

Jessica 0:00

Tax season is right around the corner, and in today's episode, we are talking about what to do with your tax refund to set yourself up for success. If that's of interest, stay tuned.

SPEAKER_00 0:11

Sugar Daddy Podcast, yo. Learn how to make the pockets grow. Fundamental freedoms where we go. Smart investments, money flow.

Jessica 0:22

Welcome to the Sugar Daddy Podcast, where we help you build a clear financial plan so you can feel confident and in control of your money. If you are a first-time listener, welcome. We're so glad to have you. And if you have been with us from the very beginning, we are glad to have you back. So thank you for tuning in with us every single Wednesday.

Brandon 0:45

Hey, babe. What are we talking about today?

Jessica 0:48

Today we are talking about taxes and if you're getting a tax refund, what to do with it to set yourself up for success so that you don't feel like you have squandered whatever refund you are getting. If you're getting one.

Brandon 1:02

Yes. The goal of today's conversation is if you are actually getting a tax refund, what are some of the things that you could do with it to set yourself up in a better financial place?

Psychology Of Wanting A Refund

Jessica 1:11

Yes. Okay. I do let's just jump right in because there's a lot of chatter every tax season on the internet that is like if you are getting a tax refund, it is because you did something wrong and you gave the government a free loan. So let's just get right in and address that.

Brandon 1:28

I'm not gonna say you did something wrong.

Jessica 1:30

Okay.

Brandon 1:31

Because wrong implies, in my mind, like a penalty associated with it, like a negative outcome, a negative scenario.

Jessica 1:38

Okay.

Brandon 1:38

And it's not necessarily a negative scenario. So if you're getting a tax refund, what that means is that you paid more taxes out of your paycheck. So we're just gonna talk about W-2 income. You paid more taxes out of your income throughout the course of the year than you needed to.

SPEAKER_02 1:52

Okay.

Brandon 1:53

So the government has your money, and the way that people kind of frame it is that you essentially gave the government a free loan, which technically, if I say you got a tax refund of$5,000, they had$5,000 at some point throughout the course of the year from you that they were probably using for something else. So they were getting quote unquote a free loan. But I'm not gonna frame that as like you did something wrong.

Jessica 2:15

Okay. What about the people who uh sp uh maybe intentionally uh do that so that they can get a refund? Like some people really like getting a tax refund. What about those people? What would you say to them?

Brandon 2:29

I would I would once again take the next step further and ask them why. Dig into, you know, the their psychology around money, you know, their behavioral finance aspects there to kind of see like what is it about getting a refund is why is that a goal of yours?

SPEAKER_02 2:47

Yeah.

Brandon 2:48

Because I would almost argue, like I would prefer, like to say for easy number standpoint, if I got a six thousand dollar tax refund, that six thousand dollars, if you had it throughout the course of the year in your account, even just a high-you savings account, you'd have more than six thousand dollars at the end of the year. If you're saying putting five hundred dollars five hundred dollars a month into the account.

SPEAKER_02 3:08

Yeah.

Brandon 3:09

So what is it behind that? Like I would also, I would argue maybe they have a hard time saving and they would much rather have that lump sum at the end rather than the habit of saving throughout the course of the year. But once again, like I said, it's it's taking that step further to kind of examine you as an individual why.

SPEAKER_02 3:26

Okay.

When Owing A Little Is Optimal

Brandon 3:26

Now, like I would prefer to maybe even owe the government a little bit or break even than have this large tax return personally.

Jessica 3:35

Well, I was gonna say, most of the time we do owe a little bit, not anything egregious, which then I kind of internalize as, oh, we did this well. We didn't give the government a quote unquote free loan. But last year we ended up getting several thousand dollars back. And I was like, oh, I'm so surprised. But it was actually the perfect year for that because you tore your Achilles and we had a lot of medical expenses. And so we just literally put that money into the high yield savings, knowing that we were going to use it to pay all these bills that were gonna be coming in. So last year, for whatever reason, it worked in our favor, but typically we owe a little bit. We don't usually get a refund.

Brandon 4:19

The idea behind it is if you're doing the proper planning and you have a W-2 income. So like ours is gonna be a little bit different because I'm self-employed. So we have some variations there. But for someone with a W-2, it's like should be a little bit more predictable for you on how to do that.

SPEAKER_02 4:34

Yeah.

Brandon 4:35

And, you know, like I said, it's I would just take it that step further to kind of determine, hey, why do you want a large return? Because if you're looking, if you already have in your mind you want to do something with that money, why weren't you saving throughout the course of the year to do that? What was preventing you from doing it?

Jessica 4:52

Right.

Brandon 4:53

That's all that's the only thing, that's the only caveat that I have.

Priorities For Your Refund

Jessica 4:55

Okay. Well, today's episode is really for the people who are getting a refund. Whether it was planned for or maybe unexpected, how do we use the refund to set ourselves up for success going forward in the remainder of the year? What would you say to those people?

Brandon 5:14

It would start with what are some financial needs that you have when it comes to your overall financial plan?

Jessica 5:19

Okay.

Brandon 5:20

So, for example, some of the early or some of the early phases of financial planning, such as funding an emergency fund. Do you have a properly funded emergency fund? If not, could this go, could your tax refund go towards helping to fund your emergency fund? Because I think that'd be a really good use of the money.

SPEAKER_02 5:35

Right.

Brandon 5:35

Now, another aspect is looking at like, hey, a big one for people is is debt. Do you have any type of like, you know, credit? We're gonna we're just gonna focus on here on like, you know, the um high interest rates debt. So mainly credit card debt. Do you have any credit card debt that could be wiped out or a big portion of it will be paid down by using your tax refund?

Jessica 5:55

Okay.

Brandon 5:56

Because a lot of times people get a tax refund and they just want to blow in on something fun.

Jessica 6:00

They go shopping, I understand a vacation.

Brandon 6:02

Yes, I understand that. And it could potentially be used for that. But I want you to look at your financial situation and what do you need?

Jessica 6:11

Prioritize.

Brandon 6:12

Prioritize. Like obviously, we love vacations, but if you have a lot of uh credit card debt or you don't have a properly funded emergency fund, the money could better be served there.

Jessica 6:20

Right. Well, and you don't have to use the emergency fund, depending on how much it is, right? There's a big difference. Yeah, sorry. The tax refund, there's a big difference between I'm getting$500 back and I'm getting$5,000 back. Right. Right. So that obviously matters, but you don't have to use it for one thing. So you could let's say you are getting$5,000 back. Like, could you put$2,000 into your emergency fund? Could you pay down$2,000 of debt? And could you put$1,000 into your high yield savings for a future vacation, right?

Split The Refund With Intention

Brandon 6:53

You could also like you could, like I said, I mean, granted, you said vacation, you could also look at possible plan expenses you have in the year coming up. So let's just say, for example, your best friend's getting married and you're her uh maid of honor. So you're gonna have to pay for address, maybe like a bachelor red party, um, hotel flight. So, you know, things you have going on through the course of the year that you can now plan for, maybe you could put it towards paying for that so that you don't go into debt for those expenses. Yeah. Really, what it is is honestly examining your individual circumstance. And once again, that goes to planning, looking at your your own personal life and planning your needs out.

Jessica 7:29

Right. And I you always remind people that planning is a verb.

Brandon 7:33

Yes.

Jessica 7:34

Right? It's something that you actively do. It's not just a one-time thing, it's like a constant thing.

Brandon 7:40

Even if you think about it on like a bare basis, like for example, with you and I, we are running Apple notes that we update every Sunday night as far as what our plans, what what's going on this week that we both need to be on the floor?

Jessica 7:52

It's literally called Sunday night notes. Yeah.

Brandon 7:54

So we're we're like, oh, okay, you know, kids have swim on this day, they have therapy on this day. Oh, Jess has just has um a later meeting than normal on this day, so that I know, like, hey, I gotta make sure that I'm available to take care of dinner or stuff like that, whatever it may be. But we it's planning. We're doing it anyways in all aspects of your of your life. You're planning in other aspects. You just don't think about it that way necessarily. You think about financial planning as something different, but it's just a different aspect of planning.

Plan For Known Yearly Costs

Jessica 8:22

Right. You're planning the birthday parties, you're planning what you're gonna do for Valentine's Day, you're planning what you're, you know, like if you're a work, like if you're a workout person, a lot of people plan their workouts before they get to the gym. Right, right. Or plan meal plan. If you're a meal planner, like, okay, you're planning what you need to get from the grocery store. How are you gonna cook it? How are you gonna package it? Like all of those things are plans. But you're right, people have this hang up because it's money, because it's finance, because it's intimidating, because it's all the things, and it's emotional, right? Money is emotional. And so people have a hard time thinking about it in the same way of like, I'm planning my son's birthday, which you've done every single year since your son was born, but planning for your tax refund feels like this really big, daunting thing.

Brandon 9:08

Yeah, you don't necessarily have to make it that big of a deal. Like you can really, like I said, if you're you one of the things like I said, we're always talking about is using Monarch money. It's a really easy way to know what's going on in your financial life on a day-to-day, month-to-month basis. You can easily look on there and see, hey, oh, I have some credit card debt, or, you know, I have this other debt that I want to, you know, or I can see like my emergency fund is not where it needs to be. It doesn't have to be this long, drawn-out hours upon hours thing. Like it really can just be getting the low-hanging fruit of the needs that you have in your financial life.

Jessica 9:39

Yeah. What about the people who maybe they're getting the refund and they're like, well, I don't want to give the government a free loan anymore. What do I need to do to fix that?

Brandon 9:48

Well, if you're a W-2, you're gonna have to make um changes to your W4 with your employer. As far as, you know, for example, one scenario might be like um if you've had kids, if you've had like things in your life change where you have additional deductions and they're taking out too much from your paycheck based upon your situation.

Jessica 10:06

Okay. Okay.

Brandon 10:07

That's ultimately what it is. It's like you're ultimately they're estimating what you're gonna make out throughout the course of the year, and then they're taking it out of each paycheck. And that's based upon, like I said, your individual situation. Like, do you have one kid? Do you have two kids? You know, other things? Are you independent? Yeah.

Planning Is A Daily Habit

Jessica 10:22

And for some reason, some companies make it easier. And I've been with companies where it's like, answer these four questions and we will figure out your deduction for you. And then there's other companies that are like, look at this form, answer this question, go down to box 27. Is box 27 an A or a B? And then and it's a little bit more difficult and it feels intimidating. And you're like, every year, you're like, I'm doing this wrong.

Brandon 10:45

The other thing is, like, you know, obviously that that kind of falls under HR's umbrella. Yeah. But is HR really necessarily equipped to understand your individual tax situation? Not necessarily. So you might need to do some educating, education on your own to understand what changes you didn't make in order to make sure that the proper amount's being taken out, if you don't want to have a large tax refund at the end of the year. And you want more in each paycheck, each pay period.

Jessica 11:11

I want my money as full as possible, as much as possible throughout the year.

Brandon 11:19

But here's the thing is you also to like once it comes, it comes back to the behavior aspect. So if you're someone that is used to having a large tax refund at the end of the year and you want to change that to not have that, make sure that money that you're having more money in each of your paychecks doesn't get lost in the abyss.

Jessica 11:34

That you have a plan for it.

Brandon 11:35

Because if you already had a plan for your tax refund and you still want to kind of do the same planning, you gotta make sure that a little bit of additional money that you're gonna have in each paycheck, you have a plan for it to capture it and put it to work. Put it to work.

Jessica 11:45

Yeah, absolutely. That's a great call out. So as you're thinking about not only getting your taxes done on time or, you know, filing for an extension on time, thinking about what you're gonna do with your tax refund, looking at your individual situation, looking at your high interest debt, looking at your emergency fund, looking at upcoming expenses that you know you're going to need to cover and making a plan. You don't just want to, whether it's$200,$500,$5,000, whatever that might be, you don't want to just get that check or get that direct deposit and not have a plan for your money because that's where it just disappears. So look at your debts, look at your upcoming expenses, look at your emergency fund and figure out where that money could be best utilized.

Fixing Withholding And The W-4

Brandon 12:32

I also just forgot to mention, you know, if you have your debts and all those things taken care of, maybe put into an IRA. Right. Investing wise. So there's, you know, the positive aspects, not just maybe taking care of quote unquote negative things in your financial situation. It could be also just prop uh propping yourself up for, you know, some investment growth as well.

Jessica 12:50

Yeah, absolutely. I know there's a lot of buzz at the beginning of the year about maxing out your IRA as soon as possible, which, you know, obviously has its benefits because then it can compound for longer. But as long as you're actively investing and you're managing your investments, I mean, that's that's where you want to be. So yeah. Well, hopefully if you do get a tax refund, it's an exciting time for you to make some progress with your financial goals. And whether that's debt payoff or emergency fund or investing or planning for something fun that you have coming up. We hope that this episode helps you wrap a plan around your money, give your money a job to do, because that's really what we want is we want your dollars to have a job. And we hope we gave you something to think about when it comes to potentially getting a tax refund or deciding to set yourself up to not have that same refund next year. Whether you think it's a free loan to the government or not, we are not here to judge that for you, but we do want to help you make sound decisions with your money. So hopefully this was an informative episode for you. Share it with a friend, share it with a family member, and we will talk to you next week. Thanks for tuning in. Don't forget, Benjamin Franklin said, an investment in knowledge pays the best interest. You just got paid. Until next time.

SPEAKER_00 14:11

Sugar Daddy Podcast go. Learn how to make the pockets grow. Finance of freedom's where we grow. Smart investments, money flow.

Jessica 14:20

Thanks for listening to today's episode. We are so glad to have you as part of our Sugar Daddy community. If you learned something today, please remember to subscribe, rate, review, and share this episode with your friends, family, and extended network. Don't forget to connect with us on social media at the Sugar Daddy Podcast. You can also email us your questions you want us to answer for our past the sugar segments at thesugardaddypodcast at gmail.com or leave us a voicemail through our Instagram.

SPEAKER_03 14:49

Our content is intended to be used and must be used for information for possibility. It is very important to do your own analysis before making any investment based upon your own personal circumstances. We should take independent financial advice reliance professionals and connection with or infinitely research and verify any information you find in our pockets and we to rely upon whether for the purpose of making an investment decision or otherwise.