ORLANDO, Fla. – Millions of Americans are getting a financial boost this tax season, with the IRS issuing tens of millions of refunds averaging about $3,600. While that extra cash may feel like a bonus, experts say it’s important to remember it’s money you earned – not a windfall – and how you use it now could have a lasting impact.
We spoke with CBS News Business Analyst Jill Schlesinger who says before spending, taxpayers should take a step back and make a plan. Jill says using that refund wisely can provide more long-term stability, especially as everyday costs remain high. Here’s the transcript of our full conversation:
WKMG-TV: So far this year, the IRS has received nearly 70 million tax returns. And of those 70 million returns, more than 50 million taxpayers have received a refund averaging about $3,600. CBS News Business Analyst Jill Schlesinger is here to tell us to hit the pause button before spending that extra cash.
Jill, I got my cash. I want to spend it. This sounds really counterintuitive.
Jill Schlesinger: I know, I’m sorry. I mean, first of all, I think when you get a refund, you have to remember that although you feel like you found money, it’s your money gang. You just gave Uncle Sam an interest-free loan for an entire year. That’s a pretty lousy deal.
So, I encourage you – if you get big refund, and we’re talking $3,600 is a big refund – to keep more of that money throughout the year, use the [IRS%20Tax%20Withholding%20Estimator]IRS.gov Tax Withholding Estimator. Then you can adjust your withholding at work and maybe if you’re self-employed you consider reducing your quarterly tax payments.
Remember the goal here is that you’re going to have more money throughout the year and this is really helpful especially as prices are rising and people feel strapped.
WKMG-TV: Okay, Jill, so what should people do with that cash on hand?
Jill Schlesinger: All right, you got your refund. Don’t let it burn a hole in your pocket, right? But I would keep some of that extra cash just to make sure you absorb the shock that you’re gonna see at the pumps because that’s not going away very quickly. Then maybe you would consider addressing what I call the big three.
Number one, fund an emergency account that can cover you if something bad happens…your safety net, if you will. You’re hoping to cover six to 12 months of your living expenses.
Number two. Reduce your credit card or other high interest debt. Interest rates are going to stay higher for a while here, gang. Paying off that high interest is really going to help you actually get it done faster.
Number three, you have one and two done, fund your retirement plan. Maybe increase your contribution, especially if you have not reached your match. If you don’t have a plan to work, then maybe use that refund to open and fund a traditional or Roth IRA.
WKMG-TV: And Jill, out of those big three, you really didn’t touch on anything about homes. Should people use their tax returns to help pay down their mortgages? Is that a good idea?
Jill Schlesinger: Well, I think this often will offer people peace of mind, right? It’s like, ‘Oh, I feel so much better. The mortgage is going down.’ But this really depends on your interest rate. And so many homeowners have very low interest rates; more than half have loans under 4%.
So really, let’s think of it this way. You put that money down on your mortgage. But instead of doing that, if you invested it, my guess is that over time, you would probably earn more than that 4% mortgage. So that’s one point. I think the other aspect of this is that when you pay down a mortgage, it sort of feels good in the moment, but you’ve lost access to that money.
And as you age or as you go through a rough time in your own life, the money that you use to pay down the mortgage, that might actually provide stability to you. And it might be necessary to fund an unexpected health or medical need. So, I like keeping my cash on hand just in case.
WKMG-TV: Excellent advice, Jill, as usual. Thank you.
You can see Jill regularly on CBS Mornings and the CBS Evening News. And for more analysis, go to JillOnMoney.com.