What To Do With Your Tax Refund

It's tax season and you know what that means- FREE MONEY!!

Ok, not really.  But- as far as our house goes, we do consider this a little like free money.  Perhaps a bonus is a better way of looking at it.  For many years, we've had to pay the IRS.  So when it comes tax season, we always go into it with the expectation that we will have to pay.  Our motto- prepare for the worst.  So that's just what we do.

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Thankfully the last few years we'e actually recieved a refund.  Not a shit ton but really, anything would make us happy as long as we don't have to pay the government!

So that brings up the question- what should you do with your tax refund?

I've talked a bit about my goals and resolutions during the coming year.  Many of these things take money.  So this is a great time to work towards these goals when you have a little extra money.  Here's my recommendations on how to spend your tax refund in order of importance.  Please note- this is simply how my husband and I do things.  I'm not a financial expert and certainly no Dave Ramsey but I like to think I have the basics down.

1. Save It!  Holy Buckets people- of course you should be saving as much of your tax refund as possible.  My suggestion is to put 50% of it directly into savings.  Then leave it alone.  Here, I'll say it again.  Put half into savings and then LEAVE IT BE.
2. Pay Off Debt.  Now why didn't I put this item first?  Simple- without money in savings you are screwed.  If you need cash in an emergency and chose to put it all towards debt, then where would you be?  Turning to credit cards most likely...That means you'll get hit with high interest rates- no bueno.  My recommendation for the amount you'll put towards debt really depends on how much debt you have.  If you're swimming in it- then you should just put the remaining 50% towards it.  Otherwise, I would go with 25%.  Pay off the credit/debt with the highest interest rates first.
3. Personal Use.  Ah- and we've reached my personal favorite!  If you were allowed to pass #2, then you'll have 25% of your refund left.  Now's the time to take a look at some of those goals that you set back in January.  Any big purchases you've been holding off on?  Perhaps a family vacation you wanted to go on?  This category is yours to do with what you want- so go for it!

Splurging on a new light fixture!

Now, you're probably wondering why I include room for personal use.  Wouldn't it be more responsible to just put all your money towards savings and debt?  Well- der.  Of course it would be!  But think about it- what kind of life would that be?  How depressing to be stuck in this cycle year in and year out.  Don't underestimate the value of quality of life.  If 75% of your refund is going towards being responsible then I don't see anything wrong with using the remaining 25% for having a little fun.  Do you?

And just in case anyone is wondering- the husband and I are buying a new light fixture that has needed replacement for 3 years, a ceiling fan for the kiddo's bedroom and new tires for the car.  So yeah- sometimes personal use is still going the responsible route.  But man- will it be awesome to have a new light fixture for our office space!