According to Bankrate.com, there were 82.8 million tax returns filed in 2012 that utilized the IRS’ direct deposit option for $247.2 billion in refunds. With the average refund hovering right around $2,985 last year, it’s clear that some careful planning is in order if you’re expecting to receive (or have already received) your own tax refund this year.
In years past, I’ve always advocated a mix of saving your refund money, paying down debt and investing in a bit of personal enrichment. This year is nothing different, but the totals are heavily skewed as I decided to put around $1,2000 of my $1,800 tax return towards the purchase of a new laptop (in case anyone is wondering, I mostly receive a refund solely because of the property taxes and mortgage interest I pay. If it wasn’t for these two factors, I’d most likely owe the IRS money as I hate the idea of the “interest-free government loan” that some people refer to tax refunds as being).
While the laptop was a necessity given the fact that I’m primarily self-employed these days and my old laptop was 7 years old (and took no less than 20 minutes to load one single Firefox browser window), it was still a hard pill to swallow to not put that money directly towards my savings goals for the year.
If you’re currently planning what to do with your refund if you receive one, consider some of the following ideas for creative ways to put your tax refund to good use. Speaking of planning, I sure hope you have a plan or will make one because the statistics around saving vs. spending tax refunds are grim: upwards of 70% of Americans spend their refund without thinking about it. If you don’t have a plan, that money will be gone before you know it!
Saving Your Tax Refund Money
There are tons of great options for saving your tax refund:
- Beef up your E-fund. If you don’t have a cushion for emergencies, create one today!
- Invest in your child’s future. Start a 529 savings plan today to cut down on education-related expenses tomorrow.
- Create a dedicated savings account for upcoming expenses. If you know your car needs repairs soon or you’re going to need a new roof this summer, start saving now!
- Start that vacation fund. We all need some R&R from time to time—put away your pennies for that dream vacation because every bit counts.
Paying Down Debt with Your Tax Refund
If you have any of the following debts, consider putting the bulk of your tax return towards paying them off or down:
- Pay down your HELOC. Help dig yourself out from any housing-related debts and invest in your home’s equity.
- Slash the credit card balances. Anything on the cards should be tackled ASAP—especially the higher interest rate balances.
- Pay down your student loans. With student loan balances and defaults at an all-time high, it’s a great idea to get rid of these ASAP.
- Pay down/off any personal loans or medical bills. Do you owe a friend or family member money? Don’t let money come between you—pay it off now!
Investing in Personal Enrichment
If you have your savings and debt bases covered, feel free to spend a bit of that refund money:
- Invest in yourself. Perhaps there’s a class you’d like to enroll in or a hobby you’d like to take up. Use some of the money to invest in your future enjoyment—it will do wonders for your stress levels!
- Invest in your relationship. Ditto about the stress here. Relationships, whether it’s with your spouse, partner, friends or family, all deserve to be given some attention. Whether it’s a romantic weekend away or a fun date night, consider putting some money towards strengthening your bonds.
- Invest in your home. Energy efficient appliances, new windows, plumbing updates, the list goes on. Fix it before it breaks and save yourself hundreds!
- Allow yourself a small, frivolous purchase. If you’ve been on the financial straight & narrow for a while, it’s OK to allow a small purchase here and there—as long as it fits in the budget, won’t derail your other efforts and won’t be a catalyst for more mindless spending!
What are you doing with your tax refund this year?
This post was written by Jen, a staff writer from The Happy Homeowner