Cutter Family Finances: Don't Blow It!


For many of us, getting our refund is the best part of tax season. It feels like found money... but it’s not. It is money we have worked for, that has come out of each paycheck throughout the year. And, in my opinion, if we treat a tax refund like a paycheck, it is easier to avoid the temptation to spend it all. The average tax refund this year will be just about $3,000. So let’s say you earn $52,000 per year—that is actually three weeks of work.

Now, the most appropriate way to use a tax refund depends on a person’s financial situation and the amount of the refund. But this week I want to discuss with you, Cutter Family Finance readers, a few ideas to use that money wisely.

The first is to pay down debt. Americans have done a great job since the market collapse of 2008 in deleveraging our debt. But many of us still have a way to go. Using a tax refund to pay off credit card debt or other household debt is a very smart use of that money. However, it doesn’t do much good if paying off one debt leads to the creation of new debt. The best way to avoid this is to have a budget. A budget is a financial blueprint. I have found that a common thread of people who are financially secure, regardless of age, is the ability to create and stick to a budget.

Another smart way to use a tax refund is to save it for purchasing gifts and other items that are often overlooked when putting together a budget. Last year people spent nearly $800 during the holidays  and families typically spend an average of almost $700 on back-to-school shopping. Putting money into an account now for those two shopping seasons can help many avoid busting a budget later in the year.

Tax refunds can also be used to plan for the future. In the United States, not enough people save for retirement. Even folks in their 40s, are not saving for retirement. As I stated above, the average tax refund last year was just about $3,000. Imagine how much that refund would grow if it were invested in a Roth IRA compounding returns year after year. For example, if you are 35 and contribute $3,000 to a Roth IRA this year, you could potentially have close to $600,000 by the time you retire at age 65. This is significant. However, my assumptions are based on investment strategies that avoid market losses and focus on positive rates of return. As Cutter Family Finance readers have read in the past, I am not a proponent of a buy and a hold investment strategy, which does neither, and avoiding loss is critical to a sound investment plan.


Preparing for life’s surprises is another way to use a tax refund. Folks often neglect to do so. But, whether it’s your car, your home, your health, expect the unexpected. Setting aside a tax refund for surprise repairs or replacements, and unexpected illnesses can help to avoid debt if faced with such a setback.

Tax refunds can also be used to start funding retirement or college savings for children and/or grandchildren. One way to do this is to put money into a cash value life insurance (CVLI) policy. This strategy can be effective, depending on a person’s age and health, by keeping the cost of insurance as low as possible and harnessing the power of compounding interest and tax-free growth to build cash value over the life of an insured. Funds are contributed to a CVLI policy after tax, but that money, the cash value, grows tax-free. This cash value can be accessed during college or retirement years tax-free, to produce an income stream that, if structured properly, will never run out. It is critical, however, to seek an advisor who can structure such a strategy correctly. If it is not done properly, a person can lose the tax-free withdrawal benefit and may not even know they have until it is too late.

Whatever you choose to do with your refund, make the decision before you get the money. A tax refund is often the single largest amount of money a person will receive at one time throughout the year. If you get one, don’t let it burn a hole in your pocket. If you make a plan and have a strategy for your refund, before you actually get it, then you are more likely to use the money to achieve long-term financial goals, rather than to buy something that only gives you short-term fulfillment.

Be vigilant and stay alert, because you deserve more!

Jeffrey Cutter, CPA, PFS is the managing partner from Cutter Financial Group, LLC ( which provides private wealth and investment management through low risk, low volatility successful strategies; you don’t have to lose in order to gain. He can be reached at

Investment advice is offered by Horter Investment Management, LLC, a Registered Investment Adviser. Insurance and annuity products are sold separately through Cutter Financial Group, LLC. 


No comments yet.
Please sign in and be the first one to comment.