Five Constructive Ways to Spend Your Tax Refund

Five Constructive Ways to Spend Your Tax Refund - picture of tax form with money laying on it

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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:

  1. Pay off high interest debt – Pay off your shit!  Enough said.
  2. 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.
  3. Bolster your savings – Already have an emergency fund?  Save or invest your tax refund.
  4. 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.
  5. 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?

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  1. When I get tax refunds, I always put it towards my savings. I can understand the overwhelming feeling though, I guess it has to do with the fact that even if the tax refunds are your own money, it`s an amount you hadn`t thought about, you hadn`t made a place for it in your budget or anything, so when you receive it, it feels like “free” money.

  2. We’re some of those folks who bought furniture (a bed) with our tax refund. We were planning to buy a bed anyway, and it was nice to make a big purchase without really feeling the dent in our checking account. We spent 4-5 months shopping for a bed, and ended up finding one we like for 60% off retail.

    If we get a tax refund next year, we’re planning to funnel it towards a vacation. We’d love to go to Europe before settling down and having kids (I’ve never been)

    1. That’s what we did with our tax return….added it to our vacation fund!

  3. My plan was to use it put it all in to registered retirement savings to increase my tax return next year but I need a new window and the return is paying for about 1/2.

    My oldest son got over $2,000 and it was gone in about 10 minutes. Baseball registration, gym membership, a late rent payment and some money on his credit card and poof it was all gone. He is majoring in economics but money management is not his strong suit.

    My youngest only received $62 and he spent it on protein powder.

    1. At least you are saving the other half, right??

  4. Like you, we don’t like the government to use our money for a whole year. We owe them $52! We try to stay as close to $0 as we can estimate. Last year we chose to use our $130 refund toward this year’s taxes. Normally we get back about $12, but we have had some financial changes, so it has been a little more difficult to estimate.
    Good post, Holly! You are right. Most people consider a tax refund as “found” money.

  5. I was actually going to the casino and put it all on red. 😉 Seriously though, I could not agree more and will never understand just blowing a big tax refund. Take some, a small part of it, of it out and do something fun but use the bulk for something wise. We got a whopping $160 back total so it’ll probably just go in savings.

    1. Ohhh……$160 bucks. Sounds like grocery money to me =)

  6. It seems a lot of people around here use it to start shaking and baking Crystal Meth… well a few people at least. They normally get it in the first 30 days you can file your return though!

    As far as what I did, I put my tax refund in as part of my downpayment on our new house. We’re loving it so far so I’d say it was well spent!

  7. It’s crazy how many people buy their toddlers iPads and then complain about not having money. Seriously nutso.
    We used ours to pay down 25% of our debt and it felt awesome. Once we have an e-fund set up well definitely reduce our withholdings, but with our new income sources I’d like to be safe this year.

  8. It must be nice getting a refund 😉 We got a big one last year, particularly because of a tax credit from my wife being in school a semester that year. This year we paid in over $1k….we are adjusting how much is taken out as well as paying quarterly estimated taxes to make sure we are closer this year.

    1. We decided against paying quarterly estimated taxes…mostly because we are being lazy about it. Instead we are just having additional money withheld from our paychecks. It doesn’t matter either way….we’re all going to pay!

      1. We’ve had years where the additional withholding wasn’t enough to make up for side income. I think you get a grace year on the estimated taxes though– they allow you to mess up once. Don’t quote me on that though.

  9. We through our tax return towards my student loans. Do I talk about my student loans enough? haha

    1. When are you going to have them paid off!??!?!?

  10. Ours just always went to wherever the monthly surplus is being aimed at the time. But the last two years we’ve either owed or it’s been small enough that it’s really only enough to pay the tax guy. =)

    1. I hope to get our amount closer to zero next year!

  11. Ensure emergency fund => Take care of high interest debt => IRA to employer match => Max Roth => Pay other debt

    Doesn’t matter the source of the windfall

  12. Well, there goes my plan. Are you saying that my 3 month old doesn’t need an iPad? Party pooper. We usually save our refund, but this year we needed a couch. It happens.

    1. Hey, but at least you know that it’s your money and that it isn’t some special gift or something, right? I bought a new couch last year too!

  13. I will have to wait and see for next year. I owed this year :(. The ideas you have are good and I think, pay off your shit hits the nail on the head. In the past when we did get refunds, depending on size, I may set a little aside for something fun but use the rest to hammer down debt.

    1. We owed one year and I HATED it. I felt like I had been ripped off or something, when really I just hadn’t had my exemptions at the right numbers.

  14. I am doing my taxes this week. Its not because I was procrastinating it was because I was waiting for a couple K-1 forms and they finally came. Not sure if I will get a refund or how much it will be. If I do get one I will just use it to pay myself back for some of the medical bills we incurred for our little guy last year and this year.

    1. Wow, you’re really cutting it close! I hope you get some money back!

  15. Ours gets allocated among a few different savings pots: Home Repair, New Car, Car Repair, Kids Major Expense, and Vacations. Nothing terribly exciting but it definitely helps pay for things when they come up.

    1. I think it’s exciting. I love having money saved for emergencies~!

  16. Ours just went into general slush. Haven’t decided what to do with it or its other un-allocated dollar friends yet. Some sort of savings.

    1. That sounds like a good plan! I’m sure you will find something to spend it on!

  17. Haha. This is actually pretty funny. Normally any refund goes directly into savings, but this year we’ve actually decided to put most of it towards a flat-screen tv! No joke! Seriously, we’ve wanted to upgrade our tv situation for a while now and this is basically our excuse to do it. We’re also planning on ditching cable, so the upgrade will include the tv, a new stand/cabinet, a blu-ray player with internet (for netflix and the like), and HD antenna for local channels. We’re already putting a lot into savings, so we don’t feel like we’re really sacrificing there. I do think your suggestions are normally the best way to go though.

    1. Hey, I have a flat screen too…but I bought mine with credit card rewards! We don’t have cable either and we use a Roku box.

  18. I was surprised (and not to happy) to find out I owed a little bit this year, especially for as little as I made! But if you look at it another way, because I didn’t have a lot of business expenses this year (because I cut WAY back on spending), I have to look at all the money I SAVED all year. 🙂

  19. We used our tax refund toward closing costs on a refinance. We’ll likely use the rest toward a concerte deck in our backyard. I understand the impulse to spend refunds on frivolous things, but you’re absolutely right; it’s not “free money,” it’s your money! Wake up, people!

  20. I, too, was surprised I got a tax refund back and changed my withholdings for this year – I’ll see if I come out even. I put 90% of it towards my debt and 10% into trying out investing since it’s easier for me to grasp a concept once I’m in it. LOL at just say no to crystal meth 🙂

  21. Family Fandango says:

    I so agree with you on not blowing that money on frivolous items. I had it put directly into our checking account. Unfortunately it’s just being used as the “in and out” funds…my attempts at having a good emergency buffer is alluding me. I would love to hear how you and your partner manage your joint or separate accounts, if you are ever in the mood to post about it…

    1. We have only joint accounts and we are actually going to write about it soon!

    1. I don’t know. For someone who has problems saving, $3500 would probably be a big deal. But I don’t have a problem saving my own money, so getting a bunch of cash on tax day is not all that exciting to me!

  22. I was surprised this year with a bigger than normal refund. I will add it to my savings.

  23. I am getting one in September for the first time, I hate that the gvt owes me! Will probably save it or invest it somewhere. Or buy beer. I don’t know how big it will be.

  24. Ours was absorbed in extra expenses (dead dryer, etc.), and the other half put back in savings. Totally in agreement with this post, so I have nothing further to say. Probably.

    I suggested people use it to get a month ahead on their budget, BECAUSE THAT IS FINANCIAL PEACE, PLAYA!

    1. I have to agree. We get paid once per month on the 1st of the month. Then I sit down and write our monthly budget based on our income since it fluctuates some. I then pay all the bills, even if they aren’t due until the end of the month. The only bills I wait to pay are utilities. Anyway, I like being ahead instead of behind because it allows me to plan everything out.

  25. My only debt is my mortgage, so I’m putting my refund into savings. I keep a portion for my Christmas gift fund for the year, so I pay for Christmas with cash. I also use this as necessary through the year for things that come up, such as dental expenses, or major car or home repairs. I actually pay for these expenses using my credit card with rewards, so I pay off the card as it is used and collect cash rewards.

    1. Ohhh….that sounds like an awesome plan! I put everything on a rewards card too, even my car insurance! Might as well, right?

  26. I guess it shows my age but, I put all mine into savings to spend on summer college classes this year so I wouldn’t have to take out more loans. I know it’s a great way to spend it but it still sucks to put ALL of it in there so I bought a used bike on craigslist and got it tuned up so I wouldn’t feel like I was just being a money hoarder and not treating myself. $206 later, I have a stacked savings account for tuition payments and a perfectly good Cannondale 🙂

  27. Mr. Bonner says:

    We got a sizable refund this year. I’m not proud to give Uncle Sam an interest free loan, so hopefully we can lend him a little less next year. I do like getting the nice surprise, though! I think we’re going to try out Lending Club with the extra money.

  28. I’m in big trouble because I spent my refund on lottery tickets, I kid, I kid! It is kind of ironic how people act as though they have won the lottery when they are just getting back some money they loaned interest free to the government. But you hear nonstop ads on how to spend your refund so it’s really no surprise that people buy more stuff. I like your suggestions, especially an emergency fund! I see too many people overlook this. Big mistake! It’s been a lifesaver for me.

  29. I didn’t get $2700, but I was close! I immediately put half of mine on my student loan as an extra payment (on top of my regular contributions), and half of mine to pay for my flight to London in May 😀

  30. Every last cent of my refund went to pay off a credit card (plus a few hundred from my debt paydown fund). I can’t think of a better way to put that free loan I gave the U.S. Gov to use!

  31. Grandma already bought my 4-year-old an iPad. Oh, she PRETENDED it was for the grownups, but it was really for the grandkids. 🙂

    We’re using it for needed home upgrades!

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