According to the Internal Revenue Service, the average tax return in the U.S. in 2012 was about $2,700. For most people, 2,700 bucks is a significant amount of money. And in recent weeks, I’ve seen multiple Facebook posts proclaiming the giant windfall of cash that people were so darn excited to have. “I spent my tax refund on a flat screen TV!” “I can’t wait to get my tax refund and buy some new furniture!” Ummm…I don’t get it. It’s your money. You didn’t win the lottery. You just spent your own money on stuff, right? But I digress.
I’ve often asked myself why anyone would want to forgo that much money out of their paycheck throughout the year. I am one greedy bastard, and I try to squeeze all of the money out of mine that I possibly can. On the other hand, I really do think it’s more complicated than that. I, myself, have even had a difficult time estimating what my taxes will be in any given year. Ours can be complicated and include variable items like rental income, investment income, and the often unpredictable freelance income. A few years ago, we got back nearly $3,500 in our federal tax refund. Horrified, we changed our withholdings immediately. Even after making some changes, we still got back around $1,200 this year. Since we are free of consumer debt and have a hefty emergency fund, we chose to throw our tax refund into our vacation fund. Here are some other wise uses for your tax refund:
Pay off high interest debt – Pay off your shit! Enough said.
Start or add to your emergency fund – My emergency fund is one of the main reasons I am (mostly) sane. Build your own emergency fund and you too can join the ranks of the semi-sane. Plus, you’ll have money when the inevitable happens….the dryer breaks, your car breaks down, you need a new roof.
Bolster your savings – Already have an emergency fund? Save or invest your tax refund.
Make an extra payment on your mortgage - This is what I do the majority of the money that we don’t save or invest. I want to pay that shit off…and quick! Making a few extra payments can shave off years of debt slaveitude.
Make necessary home improvements – Fix your leaky roof. Add insulation to your attic. Spend your tax refund improving your property or attending to repairs that have been put off.
Here are a few things not to do with your tax refund:
Head to the casino and put your entire tax refund on black.
Start using crystal meth.
Buy depreciating assets like designer purses and shoes.
Buy your two-year-old an iPad.
The most important thing to remember is that your tax refund is your money. Use it to make your life better.
Did you get a tax refund this year? What are you doing with it?