I’ve always been an advocate against getting a refund each year and changing your withholding throughout the year to get extra money now instead of waiting. Yes, getting a refund is better than paying in to the government, but I always like to tweak my withholding just enough to where my ultimate return is very modest (I’ve yet to pay in anything). Why give the government an interest free loan on your account? They surely aren’t so willing to give us any tax free loans.
This years tax return is a little different, I’m officially a DINK (and I don’t mean stupid) after getting married last year. A DINK, if you don’t already know, is a Dual Income No Kids household. So with the addition of my wife’s income, our return ended up being much greater than I anticipated with all the deductions my wife brought to the table with the additional 20% Midwestern Disaster Area credit for college tuition and expenses.
We filed a little later than usual and haven’t received our direct deposit return yet, but now is better than ever to decide what we can do with the extra cash. Like I said before, I’d rather have the cash flow during the year, but I’m not going to complain against getting a chunk of change. I guess it makes things more interesting and now I understand a little of the other side of the argument of that getting the extra money is a lump sum offers plenty of ‘right now’ options.
While there are countless ways we can use the money, here are just some of the ideas that we came up with (in no particular order of importance):
1. Pay off debt, especially high interest debt.
We do have quite a bit of student debt still lingering over our heads. I have an extremely low interest rate, so I think we’ll stand pat at making the minimum payments, but I’d like to push more money towards my wife’s student loans. If you are getting a large refund, I think it’s important to allocate 25% of your return to paying off debt, at a minimum.
2. Sock some away into savings.
Of course this is the no-brainer. It doesn’t hurt to set aside some cash for any future purchases. Interest rates are still really low on savings accounts, so it’s almost better served by putting more towards high interest debt. Our savings account has pretty much turned into a down payment for our house.
3. Start an emergency fund or contribute to your emergency fund.
With a healthy return, there really is no excuse to tackle your emergency fund. There are many flavors of an emergency fund, but I would suggest that setting aside six months worth of expenses in a separate ‘untouchable’ account for those unexpected life changing events. It can take families years to develop a suitable emergency fund, but with your refund, it’s an easy first step.
4. Contribute to your IRA or rIRA (or any other retirement accounts).
Before April 15th, you are still eligible to contribute to the prior years retirement contributions. If you haven’t started yet, now is a great time to play catch up for the prior year. If you are younger, it’s a great time to start now!
5. Time for a well deserved vacation.
Of course this would be an easy decision and a welcomed one, but don’t go overboard. Look for great deals and plan a vacation in off peak times during the year (depending on where you go) and pamper yourselves. Taking time out to relieve stress in key to remaining healthy and having a focused mind. Quality of life is very important and a worthwhile investment.
6. Donate to your favorite charity or increase your normal tithes.
Now, more than ever, charities are desperate is gaining additional funds for their wonderful works in our communities. Remember, we are supporting a purpose that most of us likely don’t have the time to participate in. Likewise, supporting church activities and missions trips are just as admirable, especially if your tithes have been lacking this past year.
7. Start your healthy lifestyle you promised yourself.
I discussed earlier about which is a better option, buying a home gym or a having a monthly health club membership. Now, you have the flexibility with your refund to do either. Although, I’d still lean towards getting a home gym because now you would have a large sum to pay it free and clear.
8. Be a generous friend.
Send a unexpected gift to your friends or treat them to dinner or a great night out. You may already do this, but I’ve felt we’ve been pretty tight with our money since we’ve been married. Making other people happy and surprised is worth any amount of money. We all can do that a little more.
9. Time for a much needed upgrade.
Have a tired couch that needs replacing? Have your eye on a new plasma TV or the newest electronic gadget? I’m not recommending spending your entire refund on household items, but it doesn’t hurt to buying something new (or used, of course) instead of pouring money into something that has been around for generations.
10. Get a little extra personal money.
My wife and I have joint accounts and all of our financial decisions are made by both of us when it comes to our money. We do get a monthly allowance, so to speak, so with our refund, we plan to take some out for our own use. Time to pamper ourselves for whatever we want, no questions asked! I’ve had my eye on a Dell netbook for a while now.
In all honestly, our goal is to tackle all 10 of these in some way. It will be a stretch, but my frugal ways will be very helpful and it’ll be even easier when my tax refund arrives. I’ll be sure to update our progress!
Have you received your refund? What did you decide to do with your refund?