Comments on: A cool way to use your tax refunds

By: Todd Christensen

Todd Christensen — Fri, 28 Feb 2020 16:31:04 +0000

I’ll fess up! There have been years in the past (fortunately they are becoming distant past) where tax refunds were spent completely on vacations and fun. More recently, we’ve been using a modified version of the Tax Refund Pyramid that recommends these starting points for using your tax refund:
30%: Needs (repairs, replacements, etc.)
25%: Debt Repayment
20%: Short-term Savings (vacations, next car, Christmas gifts, etc.)
15%: Long-term Investments (retirement accounts)
10% FUN
Have some fun without the guilt since you’re taking care of a broad array of needs and important goals.
Good luck this year!

By: George

George — Tue, 25 Feb 2020 13:39:35 +0000

In reply to Nick. I hear that, except the IRS is the one that steals it :(

By: J. Money

J. Money — Mon, 24 Feb 2020 14:34:23 +0000

In reply to Dani. It's def. easier to pay down debts than to save! I remember doing a poll here years ago and if I recall a majority of people thought the same :) Which is weird because saving is a LOT more fun, but I guess there's no built-in goals or killer interest to help motivate you as much like debts have?

By: Dani

Dani — Mon, 24 Feb 2020 14:20:03 +0000

I’m surprised that nobody has fessed up to their personal lack of willpower and intentional refund as a forced savings. I’ll be the first to admit that it’s way easier to pay down debt than to save as aggressively as when I was in debt paydown mode, but having a forced savings can be beneficial in that it will help you save up enough for that car or trip or whatever it is that was so elusive before.
Honestly, though, our taxes seem to be different every year–which doesn’t make sense because our situation doesn’t change from year to year. Some years we owe (as much as $3000), and other years we get refunds back. Personally, I’d rather get a refund than owe that much, any time! We generally turn around and drop that into the Roth to get ahead for the year.

By: J. Money

J. Money — Mon, 24 Feb 2020 11:15:46 +0000

In reply to Liz. You're a great planner! :)

By: Bo

Bo — Sat, 22 Feb 2020 18:20:30 +0000

This is a great idea. I was sitting around with a group of friends last night discussing this topic of what to do with this year’s tax refund. While some had already burned theirs, the rest of the consensus was to toss it into an investment account or to “pay ahead” bills as you discussed here. Great post!

By: Liz

Liz — Sat, 22 Feb 2020 09:53:42 +0000

I’m getting a large refund and I planned it. My husband’s military he makes about $45k in taxable income minus 3 months of pay from working in the middle East taxable income now $33750 minus the 8000 in his tsp taxable income 25750+1200 in interest plus some div our tax was -25% we have 2 kids and I am a stay at home mom. The tax law is insane. We are using it to buy 2 years of prepaid college tuition for our youngest. The rest goes towards paying cash for a second vehicle when we move somewhere I can’t bike easily.

By: J. Money

J. Money — Thu, 20 Feb 2020 20:29:37 +0000

In reply to JoeTaxpayer. Hard to argue with someone who's early retired :)

By: JoeTaxpayer

JoeTaxpayer — Thu, 20 Feb 2020 20:17:48 +0000

I’m not a fan of the refund.

When my boss (the job I retired from in 2012) told me “my tax guy is great, he got me a $5000 refund this year, and last year’s was $4500,” I walked away thinking they are both morons.

Getting a refund of such magnitude most often means poor planning. Yes, interest on checking is low, but it’s tough to walk away from the data showing that the average credit card balance is well over $3000. So, if the same people happy to get a $3000 refund are the ones paying 24% on that same $3000 they carry on their credit card, then something is wrong.

If they are happy to use this zero interest piggy bank to save for an annual windfall, I’d hope they also see it for what it is. My goal each year is to owe as much as I can and pay no penalty. This April, I’ll actually write a huge check. But that’s no problem, as that money served its purpose for nearly a full year. To SL’s comment, yes, zero is good, too.

By: J. Money

J. Money — Thu, 20 Feb 2020 19:52:25 +0000

In reply to SL.

Yeah – those laws do no good in trying to break even for sure… Seems like they’re ALWAYS changing too!