AP News: “How to use a tax refund to fight inflation”

AP News, March 27, 2023 — Marguerita Cheng, CFP® Pro, is featured in today’s article by Kimberly Palmer who writes, “If inflation has eaten away at your budget the way waves erode a beach, then your tax refund might just provide a much-needed protective barrier. As of March, prices are up 6% over the past 12 months, according to the most recent consumer price index. At the same time, just over half of filers (55%) are expecting tax refunds for the 2022 tax year, with an average expected refund of $2,205, according to the . Financial experts say consumers can use that windfall — which is really just a delayed paycheck that you already earned — to help offset the strain of those higher prices.”

Marguerita suggests: 

SAVE IN A HIGH-YIELD ACCOUNT: Rising rates also mean rising yields on savings accounts, so you can save your refund and earn more on it. “If you already have a high-yield savings account, you can also look at CDs,” says Marguerita Cheng, a certified financial planner and founder of Blue Ocean Global Wealth in Gaithersburg, Maryland. CDs, or certificates of deposit, offer higher yields in exchange for less liquidity.

FUND LONG-TERM GOALS: Because higher prices have cut into long-term savings goals like retirement and college, a refund can offer an opportunity to get back on track, Cheng says. “You don’t have to put a lot in, but it can be the seed money,” she adds, noting that her son is using his first refund as he begins his career to open a Roth IRA. Similarly, you could take care of other delayed financial tasks, such as buying life insurance. “Revisit your family situation,” Cheng urges, especially if you have younger children.

FIND SMALL WAYS TO TREAT YOURSELF: While air travel and other bigger splurges might be prohibitively expensive, your refund can give you more affordable pleasures, even after taking care of other priorities, Cheng says. She indulges in listening to audiobooks (most recently “Spare” by Prince Harry). “I was getting anxiety watching the news at the gym, so instead, I listen to audiobooks,” she says.

ADJUST YOUR WITHHOLDINGS: Lastly, if you’re receiving a refund, it means you overpaid taxes in 2022. You might be better off adjusting your withholdings so you receive more in each paycheck instead. “If you’re getting more than $3,000, then you probably want to revisit your withholdings because that could be $200 to $300 a month,” Cheng says, noting that could help offset those higher gas, restaurant or grocery bills all year long.