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Make the most of your tax refund with this mental hack, says senior behavioral researcher
Published
1 year agoon
By
New Yorker
The average amount of this year’s tax refund — over $3,000 so far — means many Americans can look forward to a decent chunk of cash landing in their bank accounts. And while you know that windfall from the IRS can help better your finances, it’s hard to resist spending your refund. But a psychological hack can make doing the smart thing a little easier.
Judson Bonick, a senior behavioral researcher on the Health Team at Duke University’s Center for Advanced Hindsight, suggests focusing on what he calls our “intention-action gap” — in other words, the gap between what we intend to do and what we actually end up doing.
“It’s all too common that even the best intentions often don’t translate into actions,” Bonick explains. “I’m definitely guilty of this. Most mornings, I promise myself I’m going to exercise 30 minutes that day. Most nights, I ask myself why I did not keep that promise.”
CNBC Select asked Bonick to share his tips on how you can make a meaningful promise you’ll keep when it comes to making the most of this year’s tax refund.
Haven’t filed your taxes yet?
While taxpayers have until Apr. 18 to file their returns, the sooner you file yours the sooner you receive your tax refund. Make sure to file your return electronically and choose direct deposit for payment to receive your refund as quickly as possible. Some of the best tax software on the market like TurboTax and H&R Block make it easy for you to file fast and accurately, in addition to helping you get your maximum refund.
Pre-commit by pledging
Before you receive your tax refund, make a detailed pledge to use it in a way that makes sense for your finances. “[A pledge] will increase your chances of spending your money based on your best intentions and not your spur-of-the-moment impulses,” Bonick says.
This isn’t just Bonick’s opinion. His previous research found that more people donated a portion of their Covid stimulus checks to charity when they made a pledge to do so, compared with people just reading an article about donating their stimulus checks.
To create a pledge about your tax return with similar effectiveness, it should try to have the following:
A specific destination for your refund money
Instead of just saying, “I want to use my tax refund to increase my savings,” you can be specific about where you want to put that cash and the amount you’re willing to commit from your tax refund. For example, smart moves to make include paying off high-interest credit card debt or putting that cash into an above-average high-yield savings account, such as any of the below:
LendingClub High-Yield Savings
LendingClub Bank, N.A., Member FDIC
-
Annual Percentage Yield (APY)
-
Minimum balance
No minimum balance requirement after $100.00 to open the account
-
Monthly fee
-
Maximum transactions
-
Excessive transactions fee
-
Overdraft fees
-
Offer checking account?
-
Offer ATM card?
UFB Preferred Savings
UFB Best Savings is a Member FDIC.
-
Annual Percentage Yield (APY)
-
Minimum balance
-
Monthly fee
-
Maximum transactions
No max number of transactions; Max transfer amounts may apply
-
Excessive transactions fee
-
Overdraft fees
Overdraft fees may be charged, according to the terms, but a specific amount is not specified; overdraft protection service available
-
Offer checking account?
-
Offer ATM card?
Marcus by Goldman Sachs High Yield Online Savings
Goldman Sachs Bank USA is a Member FDIC.
-
Annual Percentage Yield (APY)
-
Minimum balance
None to open; $1 to earn interest
-
Monthly fee
-
Maximum transactions
At this time, there is no limit to the number of withdrawals or transfers you can make from your online savings account.
-
Excessive transactions fee
-
Overdraft fees
-
Offer checking account?
-
Offer ATM card?
When it comes to deciding how much of your refund to put away, Bonick suggests making the math easy: For example, decide to put 50% of your refund into a high-yield savings account or use $1,000 of the refund cash to pay off debt. By outlining it this way, you can also designate a portion of your refund from what’s left over to treat yourself.
A plan of action
To give yourself the best chance of closing your intention-action gap, try taking some steps before the money actually comes in, Bonick suggests. Depending on your plans, that may look like already having the high-yield savings account or an individual retirement account (IRA) open before the refund arrives.
“You should go ahead and do all you can now,” Bonick says. “The more actions you take before receiving your refund, the more likely you’ll be to achieve your pledge.”
Outside accountability
There’s no better way to make something official than by putting it in writing. Bonick recommends taxpayers write down their pledges and sign them.
“Put it somewhere you’ll see it frequently, like stuck to the refrigerator,” he adds. “Say it to yourself whenever you see it. The more you see and repeat it, the more it will become the automatic thing you do when your tax refund arrives.”
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Bottom line
By using the mental hack of closing your intention-action gap through a detailed pledge, you can avoid the natural spending impulses that come with tax refunds and use that cash for financially constructive purposes.
Catch up on Select’s in-depth coverage of personal finance, tech and tools, wellness and more, and follow us on Facebook, Instagram and Twitter to stay up to date.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
Source: CNBC
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