Whether your tax refund was strategic or accidental, the fact remains that you now have money that you did not have in your hands before. The advice is similar for all found money: divest, nest and then invest.

I’m superstitious. If I find a penny, I pick it up (“all day long I’ll have good luck”). I’m also cheap. So I consider it one more penny I didn’t have before. What do you do with found money? At tax time, many people “find” money in the form of a tax return. What you do with it can be important. (For my opinion on the wisdom of tax refunds, see “Are tax refunds lottery winnings or foolish mistakes?” Deseret News, March 9, 2012.)

Whether your tax refund was strategic or accidental, the fact remains that you now have money that you did not have in your hands before. It is an opportunity to better your financial life. Unfortunately for many, that opportunity passes by untapped. It is spent on things that are forgotten a year later. Think about what you did with last year’s refund. If you can remember, you are ahead of most. If it was worthwhile, that is even rarer. Most can’t remember or are embarrassed to say how that money was blown.

As a financial adviser, I am asked frequently what one should do with “found” money. This could range from an inheritance, life insurance proceeds, and yes even tax refunds. My advice is similar for all found money: Divest, nest and then invest.


What I mean by this is to divest your debt. Get rid of it. A tax refund is likely not enough to eliminate all of your debts, but there may be some debts that could be eliminated or reduced. Look for low-hanging fruit like small balances on department store credit cards or bank loans. Also pay attention to debts with high interest rates and eliminate or reduce them.

Eliminating debt is very powerful in a person’s financial future. Typically the apprehension in paying off debt with found money is that the individual feels that they have nothing to show for it. It feels like they never had the found money and it went down a black hole. Change your thinking on this.

However large or small the debt you paid off, you just set yourself up for future success. I have sat across from individuals many times and had to show them how they cannot retire and the key thing standing in their way of that retirement is debt. Eliminating any debt will pay off in the long run.


This means taking care of short-term needs. Nesting comes in two forms. The first is emergency savings. It is prudent to have money set aside in your local bank or credit union earmarked for emergencies and opportunities. A good rule of thumb is to have three to six months worth of your expenses set aside. This can be a daunting goal and should be treated as a long-term aspiration. The wisdom of having this type of fund is that you have money on hand for those little emergencies and opportunities that might otherwise be taken care of with debt.

The second form of nesting is to literally nest at home. Make repairs that have needed to be made. Replace an appliance or weatherize your home. Many repairs or improvements save money in the long run. A typical tax refund might be just enough to make these kinds of home improvements.


If you have divested your debt, nested in short-term savings or literally at home, and still have money left, you may then invest for longer-term goals. These goals can range from the intermediate goals of college or missions to the long-term goal of retirement. Choose investment vehicles that are appropriate for your time frame and risk tolerance. Pay attention to your ability to get to the money if you need it and the costs involved.

A common mistake with found money is to assume that it must immediately go into investments. This is not always true. Especially with money that comes to you in large amounts like lawsuits, insurance proceeds or inheritances. There will be many financial professionals lined up to tell you how important it is to quickly get your money invested. Not so.

Divest, nest and then slowly invest. There is rarely a compelling reason to invest quickly and usually always a compelling reason to take your time and do it right. Although tax refunds usually aren’t enough to have financial professionals chasing after you, there is still a temptation to invest without all the facts. Resist this urge and take your time.

Fun with found money

Now lest you think that you can’t have any fun with found money, let me just say that you can. You might have a trip you have wanted to take or that toy you have wanted to buy. Just be careful that you don’t get a year away and wonder where it went. Tax refunds are usually enough to do a little divesting, nesting or investing. And what could be more fun than future financial stability?

Shane Stewart is a certified financial planner at Deseret Mutual. He welcomes your feedback. Or you’re welcome to suggest a topic. Please send your comments to