#9 What to Do with Your Tax Refund: Consider your Money Personality
Emily & Amanda open the episode with our recommendation of the book Black Fortunes by Shomari Wills. We then get into a discussion on tax refunds. First, we recommend tax planning in order to minimize your refund for next year. Then, look to your money personality to help decide what's best for you.
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- Amanda's Money Personality Blog Post - Personalized Finances: Determine your Money Personality to Get the Best Advice
- Nerd Wallet's Money Personality Quiz
- Amanda's blog post on Black Fortunes by Shomari Wills - In Honor of Black History Month, Propel Recommends the Book Black Fortunes
- Full Transcript below
Emily Agosto (00:00):
Welcome to Connecting the Dollars, a personal finance podcast. I'm Emily Agosto, a CPA and financial
advisor.
Amanda Vaught (00:07):
And I'm Amanda Vaught attorney and financial advisor, both Emily and I are co-owners at Propel
Financial Advisors.
Emily Agosto (00:17):
Propel Financial Advisors is an investment management and financial planning company. We are fee-
only fiduciaries and independent registered investment advisors. I'm based in Chicago and Amanda is in
New York city, but we work with clients nationwide.
Amanda Vaught (00:31):
The purpose of our podcast is to explore personal finance topics, including budgeting, investing,
behavioral, finance, current events, and other helpful information. We also hope you'll get to know us
along the way.
Emily Agosto (00:45):
Thanks for listening. Hello Amanda.
Amanda Vaught (00:51):
Hey Emily.
Emily Agosto (00:53):
Welcome to February. We are just getting into tax season here and February is also Black History Month.
Amanda Vaught (01:00):
Yeah, so for black history month, I always love to read a book. I, I like history and I've been doing it for a
while, but this year I thought I should read something that's more personal finance related. So I found a
book it's called "Black Fortunes." It came out a couple years ago. And it's the stories of the first six
African-Americans who were millionaires. And so this is in the, the 18 hundreds, right? And so a lot of
the, the people in the book were either born into slavery, or this was slightly after the Civil War. And so
if you think about what could black Americans do at the time, there was not a lot of opportunities to
make any money really, or very minimal. And so how did these people make, or amass these fortunes?
And, and it's just really interesting stories about how they did it.
Amanda Vaught (01:51):
I mean, most of them, it was through entrepreneurship. Most of them, you know, had no formal
education, were illiterate, had very traumatic events in their lives, minimal family support, just because
of the slavery system breaking apart their families. And so you think those are all circumstances that
would really hold people back from making money, but it didn't hold these people back. So it was really
interesting how they did it, and really what they went through to do it. I do think that one of the
takeaways from it that we think of today, is if you're a millionaire, you think, oh, that gives you some
kind of financial freedom. But for them it didn't necessarily, it almost made them targets when people
found out that they had a lot of money, they were targeted with violence or smeared in the press, or
that type of thing.
Emily Agosto (02:45):
Interesting.
Amanda Vaught (02:45):
Yeah, it was, it was interesting. And it was really well written and it was maybe like 250 pages or
something. So not too long, but long enough where you got like a really good idea of, of these people's
lives. Nice. Yeah. So I'd recommend it. If anybody out there reads it, I'd love to hear what you think.
Please let us know.
Emily Agosto (03:06):
Yeah. Or if you have another recommendation for a book about a topic celebrating Black History, we'd
love to hear that suggestion as well.
Amanda Vaught (03:13):
Oh yeah, for sure. And so, like Emily said, February is Black History Month, but it's also the start of our
favorite time of year: tax season!
Emily Agosto (03:24):
Yeah, my favorite time.
Amanda Vaught (03:25):
Yeah. And so as you may or may not know, Emily is our CPA and she helps a lot of people with their tax
returns. So I don't know, Emily, what do you think, when people first hire you or another tax
professional, what do you think is one thing that they think is gonna happen that may or may not?
Emily Agosto (03:47):
Yeah, so I think that a common misconception, when someone hires a tax preparer, they automatically
think that they're gonna have a greater refund or going to somehow make their liability disappear. And
while we do have access to potentially more tools and, you know, since we're always doing research and
learning about the ever-changing tax laws, we probably do have a little more insight into certain credits
or what-not that might be applicable to a person, but there's no guarantee that we will be able to find
something that you can take advantage of. So I think the best benefit, or the greatest benefit of hiring a
tax preparer, someone you work with every year is that in the event you do owe a lot of money or
you're getting a huge refund. You can work on tax planning throughout the year, so that you end up in a
better place when April rolls around,
Amanda Vaught (04:43):
Who doesn't want that? Yeah. And then the past few years there have been big major changes to the
tax code, but this year, one of the changes was the child tax credit. That was probably the major one
that if you do have dependent children, you got that credit in advance. Do you think that's gonna throw
people for a loop this year, Emily?
Emily Agosto (05:04):
Potentially. Yeah. So previously you would receive your child tax credit on your tax return when you
filed. But in 2021, the rules changed and people started receiving checks in, I believe it was in July for a
portion of their child tax credit in advance. So if you were, in previous years, receiving a refund due to
the child tax credit, now you've already received that credit in advance. So that could change your, the
result on your tax return. And that becomes a big problem. If you typically get a refund and you're used
to using that refund to pay a specific bill, like your property taxes, or to pay down some debt, and you're
relying on that, that, and you're not gonna receive it this year. That's really gonna throw your personal
finances for a loop.
Amanda Vaught (05:53):
Yeah. And that nobody wants to pay their property tax bill late. Right. Exactly. Yeah. And so that's
another issue right? With the IRS lately is that they're all backed up either from those legal changes or
people in the IRS working from home or for whatever reason funding cuts or they're just really backed
up. And a lot of people who are due to have refunds have been seeing significant delays right. And so if
you do need the money by a certain date, you can't necessarily count on that either, right?
Emily Agosto (06:26):
Right. It's usually better to have the money upfront instead of waiting for the IRS to, you know, do their
calculations, run everything through their system and then send you your check or direct deposit.
Amanda Vaught (06:39):
Yeah. Yeah. And, and then hopefully you do get direct deposit because if you are requesting a check, it is
just gonna take longer to process. Right.
Emily Agosto (06:47):
Absolutely weeks and weeks. Maybe months.
Amanda Vaught (06:50):
Yeah. Okay. Emily. So say we do get our first draft of our tax return done and we see, we are expecting a
refund. What do you think is one of the, the first things somebody should do?
Emily Agosto (07:00):
The first thing that someone should do is do some tax planning.
Amanda Vaught (07:04):
Oh, okay. So what, what do you mean by tax planning?
Emily Agosto (07:08):
Yes. Tax planning is super important and something that gets overlooked a lot. We do a ton of it. It's
something we do throughout the year with our clients. And it's basically just adjusting your withholdings
for the circumstances in your life. Like if your job has changed, or if you buy a new house or sell a house
or have a child.
Emily Agosto (07:31):
Yeah. All of those things affect your taxes.
Amanda Vaught (07:34):
Oh, okay. And so what if say you're already retired and you're not getting a paycheck.
Emily Agosto (07:40):
Yeah. If you're someone who doesn't receive a regular paycheck and a W2 at the end of the year, then
it's important to plan for taxes and pay estimated taxes every quarter. For certain retirees, I know for
some types of retirement accounts, you can add withholding or have withholding taken out of any
distributions you're taking from your accounts. But if that's not an option or if it's, for whatever reason,
not feasible, then you need to be doing the calculations on your own or with a tax preparer / tax planner
in order to come up with the correct amount to pay.
Amanda Vaught (08:17):
Oh, okay. And that sounds like that would be similar to somebody who's a freelancer or, a consultant
somebody paid by 1099 to do the exactly quarterly calculations. Right. Yep. And do you know, since we
don't really cover it, but what do you think is the first thing you should do if you owe tax? It's similar, tax
planning, right.
Emily Agosto (08:37):
Exactly. My same answer would be tax planning. Because you may not be withholding enough or
perhaps your calculations you're using are outdated could be a number of different things, but definitely
talk to someone, if you owe thousands of dollars or you're getting thousands of dollars back, there's
something you can do about it. You don't just have to accept it.
Amanda Vaught (08:59):
Yeah. Yeah. But you will have to pay the IRS.
Emily Agosto (09:01):
Yes. You know, unfortunately that's
Amanda Vaught (09:03):
True. And, and don't kill the messenger, right? Emily?
Emily Agosto (09:07):
Yes. I don't like paying taxes as much as everyone else doesn't like paying taxes. It's just part of the, part
of the deal.
Amanda Vaught (09:15):
Part of life. Yep. Okay. If we do end up getting a tax refund this year, what do you think is the best way
to think about what we should do with our refund funds?
Emily Agosto (09:27):
Yeah. So if you're, if you receive or expecting a large refund this year we thought it would be interesting
to take a look at how to spend or save that based on the four different money personalities. So Amanda
has a blog post on our website, which I will link in the show notes about the four different money
personalities. And these are the four "normal" personalities.
Amanda Vaught (09:51):
Yeah. They all fall within the range of what's considered normal by psychologists. Just, we are not
psychologists. This is just what we, what we have read. But things that would be considered not normal
might be disorders around spending or gambling addiction. Those types of things are outside of what
we're talking about today. These are all just the normal type of personalities we see in the United States
towards money.
Emily Agosto (10:17):
Yeah. So there's pros and cons to each type of money. Personality. There's a quiz you can take to see
which one or which few you align with.
Amanda Vaught (10:26):
Yeah, most people usually they tend to have two. Yes. There tends to be some overlap between these
different ones. So it's not an all or nothing type of thing.
Emily Agosto (10:35):
Exactly.
Amanda Vaught (10:36):
So, let's see. So the first one is what's called money worship. And so this is a type of personality or,
person who believes that money will magically improve your life or that money is gonna solve your
problems. The positive side to this is that these people tend to be ambitious, or a negative side is that
they tend to have a tendency to overspend or become attached to stuff or like material goods. So if you
recognize that type of personality in yourself what do you think you would tell somebody with, with
money worship Emily?
Emily Agosto (11:14):
Yeah. So if you are someone who identifies with the money worship personality, that actually was one
of my high scores on the quiz. And you experience a windfall, or like this IRS refund we're talking about,
a good thing you can do with it, instead of investing in yourself, which you are already doing is to maybe
pay off some debt. If you've accumulated some high interest debt, you might want to use those
unexpected funds to pay that off. Or on the other hand, something else you can do is to spend money
on an experience instead of purchasing actual goods, it might help you get you out of the habit of
spending money on things for yourself all the time.
Amanda Vaught (11:54):
Yeah, those sound good.
Emily Agosto (11:56):
So the second personality we're gonna talk about is money avoidance. So this type of personality has, or
someone who identifies with this type of personality, has a negative association with money. They have
beliefs that rich people are greedy, money corrupts, virtue lies in living with less money. Some of the
pros of this personality is that they're often very generous. So they give a lot to charity or they may be
the person, you know, buying dinner and drinks for friends. But the cons are that they may undervalue
themselves and create destructive behaviors, like financial behaviors, like not opening your bills,
ignoring them.
Amanda Vaught (12:37):
Yeah. And if, if you do have money avoidance, then something you could do, if you get a sudden
windfall, you might say, oh, what is this money? I, what do I do with it? One thing you could do is take
that money to invest in yourself and spend it on a class, or maybe a certificate it program that could help
to advance your career. Another thing you can do is that you could be in need of an accountability
system. And so if you do have, this is what I've heard is one good way to help change some of these bad
habits is to say to, you know, a trusted person, like a friend, a spouse, whoever it is. Okay, here's my
plan. I know I need to get better about paying my credit card bill on time and say, you know, for the next
three months, I have to open my credit card bill and pay it on time. And if I don't do it, then take this
large sum of money and donate it to this charitable organization that I absolutely cannot stand. And will
never want them to have any of my money and just the threat of that and, getting a trusted person who
will actually follow through it and do that. If you don't pay your credit card, bill can really help spur some
positive changes in some of your money habits.
Emily Agosto (13:52):
Yeah,
Amanda Vaught (13:53):
I know. And then the next one is a, that one called money status. So in money status, that's someone
who, sort of ties their self worth to their money. And they like to have a tendency to show off with their
money. So positive side of this is that you appreciate quality or that you have the ability to really enjoy
the fruits of your labor. A con can be sort of a misconception about how wealthy people spend their
money or a tendency to lie to others especially loved ones about how much money you have or any
money problems that you have. Yeah. So what do you think, Emily? What would you tell someone who
tends towards money status personality?
Emily Agosto (14:41):
Yeah. Someone with this habit who comes into a refund or a windfall, I think their focus should be on
savings. So an episode seven of our podcast, we went through an entire process of visualizing goals. And
these should be, these could be savings-focused for this type of person. They can also automate their
savings. So in this example, receiving a tax refund, you can have it direct deposited to a saving account,
or maybe if one spouse is better with the money, have it deposited to an account that they have access
to only, and it's, you know, gonna be earmarked for retirement savings or whatnot. So there's a lot you
can do with automation there. And I think that would also work for the money avoidant person. Like if
you avoid bills, automate your credit card payments to be on time.
Emily Agosto (15:34):
All right. The fourth and final money personality we're gonna go over today is money vigilance. So a
person with this personality, their habits tend to be all savings focused. They think saving is very
important and they believe you must work hard for your money. So those are the pros, you're a great
saver. And these people tend to be wealthier even, but some of the cons associated with this money
personality is that they can develop a lot of anxiety around money if they think they don't have enough
saved. They can also be secretive about money. And probably the biggest con I think is that you might
miss out on enjoying life. If you are so focused on saving, you may not want to spend money on, you
know, just some fun activities with friends, family, or just with yourself.
Amanda Vaught (16:28):
Yeah. I think sometimes money vigilant people can forget what their time is worth too. Yes. So if you
say, oh, I don't wanna pay a house cleaner, you know, I'll just do it myself so I can save that money. But
how much time does that take you to do that? And how much time does it take away that you could be
spending with, you know, friends or family instead of doing chores around the house? So that could be
one thing you could spend money on is to free up some time for you to do, to have some fun in the
moment, have some fun today or to spend some money on yourself, you are more than likely haven't
spent a lot of money on yourself and you are probably overdue for something like a facial or a massage
or, some activity like that, that you enjoy. Yeah. yeah. So that's why I think, you know, this gets into, you
know, personal finance is personal, right, Emily. Everybody's different.
Emily Agosto (17:27):
Yeah. And the quiz that we refer to is a Nerd Wallet quiz that I will also link in the show notes. And I
think it's just really interesting gets you thinking about things that you normally wouldn't think about, or
like, why do I think about spending money this way versus why does my spouse think about spending
money this way? It can be a really good exercise, a good way to kind of get on the same page about
certain big ticket items or just, just in general, your personal finance goals.
Amanda Vaught (17:55):
And I think, you know, you can also recognize that for spouses who have different types of money
personalities, it's not that your spouse is necessarily wrong. It's just that they have a different approach,
and a different way of thinking about money, and a lot of our money personalities, or sometimes they're
called money scripts, are formed in childhood. And just telling somebody to do something differently,
doesn't necessarily work because these are, these are very ingrained things in people.
Emily Agosto (18:22):
Absolutely.
Amanda Vaught (18:23):
Hopefully people found this helpful. And, and, you know, I think sometimes recognizing some of these
things in ourselves can go a long way
Emily Agosto (18:31):
For sure. And if you have any questions about this or want some more resources on this topic, you can
feel free to reach out to us at connectingthedollars@propel-fa.com. Everything will be linked at
connectingthedollars.com as always. And we will talk to you next time.
Amanda Vaught (18:50):
Okay. Good luck with your taxes, everyone,
Emily Agosto (18:54):
For all links and resources mentioned today, head over to connectingthedollars.com. Thank you for
listening.
Amanda Vaught (19:02):
This podcast is for informational and entertainment purposes only, and should not be relied upon as a
basis for investment decisions. This podcast does not engage in rendering legal, financial, or other
professional services.