- Personal Finance
What to do with Your Tax Return - Fun and Responsible Ideas for Your Tax Refund
Should you spend your tax refund for fun?
So you're getting a tax refund this year. What do you do with it? Do you use it "responsibly" or do you use it for "fun"? First, even in that context, it depends what your definition of "fun" is. Being frugally minded, my idea of fun may differ from someone else's. I can have fun sitting at home sipping coffee while typing away on my laptop, just as I am now. I have fun walking my dog around the neighborhood, watching him stop to sniff flowers and dog poop. I can have fun with simple, cheap pleasures, so fun to me doesn't have to cost a lot of money.
Along those lines, fun to me is also paying off my debts, including my mortgage. I'm working hard to pay off my mortgage early. To me, not owing anybody anything would be major fun! I personally couldn't spend a tax refund of several thousand dollars on a vacation, new furniture, or new clothes and jewelry when I have a mortgage still hanging over me.
But that's me. Many people say to live in the moment. Life's too short. Yes, life is too short, and if I really wanted to use that tax money for a vacation, then I could. But I don't want to. Life is also too short to live it in debt. My financial freedom is very important to me. With that said, perhaps you're tired of reading this article. You want to spend your tax return money on the traditional idea of fun. If you're willing to consider more frugal "fun" ideas, then I'm here to give you some suggestions.
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"Fun" things to do with your tax refund
Okay, maybe not all of the suggestions I'm going to give you are fun, but to me they are, as they improve your current and future living situations. Here are ideas:
LESS FUN IDEAS:
1) Pay off your credit cards.
You've probably heard it before. The interest on your credit cards is killing you financially. You are probably paying about 20% just in interest? Why are you doing that? You will never have any money if you keep that up.
2) Apply your refund to your mortgage principal.
The mortgage interest you save will be significant and get you that much closer to paying off your mortgage. It IS possible to pay off your mortgage in this lifetime. Can you imagine what kind of financial freedom that would give you? Look at your amortization schedule. If you don't have one, get a copy from your mortgage company. Look on your statement or online at what your current balance is and what it will be after just one payment. Now, take the amount of your refund and subtract on your amortization schedule to see how many months ahead you get by applying your refund to the principal. You will probably get ahead several--or many--months of mortgage payments, which means you are getting that many months ahead on your payment schedule and saving that much interest for each of those months.
3) Put the money into a savings account.
If you have no savings, put your tax refund in the bank and let it set. You need an emergency fund for unexpected expenses such as car or home repairs. You will be glad that you have it when an emergency happens.
4) Invest for retirement.
You don't usually have money to invest or save for retirement? Now you do. Deposit the money into your employer or other IRA if you have one. If you don't, open one. Consider a Roth IRA if you think you may need the money at some point before retirement. With a Roth IRA, you can take out the money deposited (not the money earned) without penalty.
Skylight Improvement in Kitchen
Things that are a little more fun?
MORE FUN IDEAS:
1) Pay off your car.
Pay off your car or at least get close. Yes, this IS fun because you know that a car payment is a pain.
2) Do a home improvement task.
Now we're getting more fun, aren't we? Is there a room that needs remodeled or a floor that needs to be redone? I recently had tube sky lights put into my kitchen to brighten it up. Now, I have natural light coming into the kitchen, and I don't have to flip on the light switches during the daytime. I also had my handyman redo the concrete flooring on my screened-in patio with a heavy duty colored paint that's attractive, but, more importantly, resistant to weather and cat nails! It's easier to clean and is holding up against my pack of felines.
3) Have a backyard makeover.
More fun, still, perhaps. Pay a landscaper to makeover your back yard. Create your own little haven. Instead of an expensive vacation, retreat to your backyard, something you can enjoy all year long.
The gift that keeps on giving...
If you spend your tax refund money on paying credit cards, mortgage or car payments, you will save money in the long run from the interest you won't have to pay. When you make an improvement to your home or land, you are increasing the resale value of your property, should you ever sell it. In the meantime, you are improving your surroundings for the majority of the year, instead of just a week or two of vacation. Using your tax refund money on practical things such as I've suggested (that are also kind of fun, in my perspective) will not only help you presently but also on down the line. Consider it!
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