Getting a big tax refund seems like a good thing – it’s not. In fact, you actually lose money by giving the Federal government an interest-free loan every year.

According to the IRS, the average tax refund is $3,120, which works out to $260 a month. There’s a lot we single moms can do by putting that extra money to work for ourselves.

Here we’re going to look at 3 lucrative ways you could be using your money, and figure out the real cost of withholding too much from your paycheck.

  1. Turn $3,120 into $315,000 by funding a Roth IRA

    When it comes to retirement savings, single moms tend to fall way behind. While I absolutely understand sacrificing for your kids – I do it, too – it’s really important to put at least something away for your future. The simplest way to do that is to open a Roth IRA account. Now, you won’t get a current tax break with a Roth IRA, but you will have access to your money without tax penalties, and all of the earnings are tax-free.

    If you put that $260 into a Roth IRA account every month for 30 years (and didn’t take money out early), and earned an average 7% annual return, you’d end up with $315,347. That’s right – you’d deposit a total of $93,600, and the rest would be pure, tax-free earnings.

  1. Save thousands of dollars by paying off credit card debt faster

    Credit card debt can be overwhelming – and a lot of single moms, especially right after a divorce, can get stuck in the credit card trap. Those balances build up fast, and soon you’re paying interest on top of interest. While you can skate by making just the minimum monthly payment, it’s nearly impossible to get out of debt that way. But take that extra $260 and add it to your credit card payment – that’s like getting a 16-21% return on your investment (and that pretty much never happens).

    Let’s look at an example of how using that $260 over-withholding could save you big bucks in credit card interest – and get you out of debt much faster.

    On a $5,000 credit card balance at 16.99% interest:

    Paying just a minimum monthly payment of $200: It will take 130 months – nearly 11 years – to pay off the balance, and you’ll pay $2,625 in interest.Adding $260 per month to the minimum payment: Your credit card debt will be paid off in 1 year, and you’ll pay only $468 in interest… a savings of $2,157.

According to NerdWallet, the average credit card for households that have credit card debt tops $16,000. And that comes with about $1,300 in interest payments every year.


  1. Build up your emergency fund, earn interest, and reduce credit card dependence

    It’s alarming: According to a 2016 survey by, 69% of Americans have less than $1,000 in savings… and 34% have no savings at all. That means most single moms don’t have enough to cover even one month’s worth of expenses, a very precarious financial position. By updating your withholding taxes, and keeping more of your money during the year, you can build up a substantial emergency fund in no time at all.

    If you funnel that $260 a month into an easily accessible high-yield online savings account – the best interest rates on savings right now are about 1.05% – your emergency fund would top $3,000 in just one year, and grow to more than $6,300 after two years. And while earning $100 in interest in two years isn’t exciting, consider that you’d be paying close to twenty times that much in interest if you had to use credit cards for emergencies.And once you’ve built a solid emergency fund, paid off your credit card debt, and started saving for retirement, everything will change. You won’t be living paycheck to paycheck. Monthly bills won’t send you into a stress spiral. You can open a non-retirement investing account, and watch your fortune grow even more quickly.

All it takes to achieve this financial freedom is making that first change – adjusting your withholding so you can put your money to work all year long, instead of giving the government another interest-free loan.