Just because I know you were all oh so curious . . . here’s how I spent my 2013 Income Tax Return! If you didn’t get a tax refund this year – I’m sorry. That’s no fun. If you did – here are some ideas to help you plan what to do with your own sudden windfall of cash. Although it’s tempting to spend it all in one place (just like your grandpa always told you not to every time he gave you $5), it’s much smarter to give that money some structure and purpose. In the long run an impulse purchase won’t be as satisfying as some of the other things you can do with you return. Here’s how I broke mine down:
Total Tax Return (Federal + State) = $1,000
** I didn’t actually get $1,000 even, but I’m bad at math so it was just easier to pretend that this was the way it went down. Also if you are good at math I don’t want you to be able to do some kind of reverse wizardry to figure exactly how much money I make.
20% Emergency Savings = $200
- Living without an emergency fund is like sky diving without a helmet – if everything goes according to plan you’ll be fine, but one small error could mean big trouble! Unless you’re the Evel Knievel of finances, I would suggest saving money for unexpected expenses like car repairs or hospital bills. If you don’t have an emergency fund already, saving a portion of your tax return is a great way to start.
20% Pay-Off High Interest Debt aka Credit Cards = $200
- Although it’s not as much fun to use a sudden influx of cash to pay bills, it is smart. If you have high interest debt like a credit card, a private student loan, or a payday loan consider using a portion of your refund to pay down your balance. Even if you can’t completely pay it off, bringing the balance down with mean you pay less in interest in the long run.
40% Vacation aka VEGAS BABY! = $400
- This year, the majority of my tax return will be saved for spending money while I am on vacation in Las Vegas. My plan is to only use cash during the trip so I can limit my spending (or try to anyways). I’ll have my credit card for emergencies, but FYI ladies buying everyone in the bachelorette party another round does NOT count as an emergency. Saving this money over the next few weeks for Las Vegas means that I won’t have to dip into my normal budget for things like dinner, drinks, or trinkets while I’m on my trip.
5% Itemized Savings aka Wedding Account = $50
- Believe it or not, my sister’s big day is only 2 months away! And her bridal shower is only 7 weeks away (not that I’m counting). So I’m tossing a small portion of my refund into my wedding savings account. It’s a great way to boost my regular contributions so I can hopefully cover most of the cost of these wedding festivities without harming my budget too much. If you don’t already do itemized savings, ask your credit union how they can help you set up club savings accounts to specifically save for a financial goal.
15% Spending = $150
- Don’t feel guilty about using some of your refund money to splurge. You deserve it! Remember, this is money we don’t typically account for in our monthly budget. Using it to buy yourself that dress you’ve been eyeing or that massage you’ve been longing for is totally okay. Just don’t go crazy and have a $5,000 shopping spree when you only got a $1,000 refund.
Other ideas for smart ways to spend your refund:
- Give to a charitable cause
- Invest in a 401K, IRA, or other retirement savings account
- Contribute to your child or grandchild’s college savings account
- Replace an energy/ money sucking appliance
- Use it for something you’ve needed for a while, like dental work or a vacuum that actually works