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7 Things to do with Your Tax Refund

February 18, 2018 By Rob Gavin - 15 Comments

It’s just about that time of year again: tax season! If you’re like Maria and me, you play it safe and get a tax refund nearly every year. We try hard to minimize the amount of our return (after all, a tax refund is really just the government paying back an interest-free loan you gave them), but it just seems to happen every year and is a lot more fun than having to pay a bunch of money to Uncle Sam. And every year, we face the same question: what do we do with the tax refund? We have a few ideas that you might want to think about when planning what to do with your own tax return. And, as you probably expected if you’ve read our blog before, you’re going to notice a definite “Dave Ramsey” theme running through all of our suggestions.

7 things to do with your tax refund | what to do with your tax return | Crazy Together blog

 

Pay Down Debt

Got a balance on your credit card? Some student loans yet to go? A few thousand left on your car loan? Getting a tax refund is the perfect time to pay off some debt. Back when Maria and I were dating, I got a bonus at work (I know, it’s not a tax refund, but the principle is the same). I looked at the bonus check, then at my car loan and realized they were almost exactly the same amount. Guess what I did? You’re darn right, I paid off that car loan. It was wonderful to free up several hundred dollars in my budget a month. And that was even before Maria clued me in to the Baby Steps and Financial Peace University.

Choosing to go debt free was a life-changing decision for us. After the car loan was paid off, we turned our attention to my student loans. I was $180,000 in debt and we threw everything we had to spare – including our tax returns – at that mountain of debt until it was finally paid off. Paying down debt is an awesome thing to do with your tax return. It’s not very sexy or fun, but it will help to grant you some serious financial peace of mind.

7 Things to Do with Your Tax Refund | #1 - Pay Down Debt | Crazy Together blog

Maria created this “On Our Way to Debt Free” chart for us. We laminated it and used a permanent marker to color our progress each time we made a payment on my student loans. If you are trying to take control of your debt, visit this blog post to download a free customizable debt-free chart for yourself.

 

Build Your Emergency Fund

If you’ve already paid off all your debt, you can move on to Baby Step 3: saving a full emergency fund of 3 to 6 months worth of expenses. Every year when Maria and I get our tax refund, we double check our emergency fund to make sure that we have enough to cover a full 6 months worth of expenses. This was especially important for us last year as we were expecting our new baby and knew that our monthly expenses were going to go up dramatically. In fact, we used almost all of our tax refund to buff up our emergency fund.

7 Things to Do with Your Tax Refund | #2 - Build Your Emergency Fund | Crazy Together blog

Save for Retirement

Already got your 6 months of expenses saved in your emergency fund? Great! Maybe you should consider moving on to Baby Step 4 and saving some or all of your tax refund for retirement. Building up that nest egg for when you retire (even though it seems so far off) is not only smart, but very important. Unfortunately, not enough people are saving money for retirement, and even those that are saving are not saving enough. Maria and I save 15% of our income for retirement and, when we’re able to, we plan to save even more.

7 Things to Do with Your Tax Refund | #3 - Save For Retirement | Crazy Together blog

 

Save for College

Got kids? Chances are that you want them to go to college. We certainly want Dessa to go to college. (We’ll see where she ends up. Maria went to Michigan State University, but I’m a Wolverine. I’m thinking she’ll be more like her daddy.) But, college is really expensive, so making sure that you save for your child’s college tuition and expenses is important. It’s so important that Dave has saving for college as Baby Step 5. We’re in the process of getting a 529 Plan set up for Dessa so that her college money can grow tax-free until she’s ready to use it. You should take a look at your options, too.

7 Things to Do with Your Tax Refund | #4 - Save for College | Crazy Together blog

Save for Other Expenses

Dave Ramsey’s Baby Steps are designed to get you set for life so you don’t have to worry about money. But just because a certain expense is not listed in Dave’s Baby Steps doesn’t mean that it isn’t important. There are all kinds of necessary expenses that you could put your tax refund towards: a car, household appliances (like a washer and dryer), furniture, saving for a child’s wedding, gift shopping for the year, the list goes on and on. Plus there are also big ticket items that are just for fun and well-deserved if you save up and can afford to pay cash for them – like vacations, appliances, and electronics.

A few years ago, we put our tax return toward an upcoming anniversary trip to Saugatuck on Lake Michigan. We plan to use this year’s tax return as the final installment of our new-to-us car savings, so we will definitely be interested to see how much we get back from Uncle Sam.

7 Things to Do with Your Tax Refund | #5 - Save for a Big Purchase or Travel | Crazy Together blog

 

Set Aside some “Blow” Money

Dave realizes that most people need some petty cash to just occasionally buy something for the fun of it. It’s not meant to be a ton of money, just some spare money you have around so you can let off some steam and buy something you really want. It’s not lunch, it’s not gas, it’s something you wouldn’t normally budget for. Like, for me, it would be a video game I’ve been wanting to play, or a new pair of headphones. It’s just fun stuff that you don’t necessarily need, but makes your life that much more enjoyable. Because we all need a little spontaneity in our lives.

 

Donate to Charity

Last, but certainly not least, you can always donate some or all of your tax refund to charity. Maria and I haven’t reached this point yet, although we do budget for giving in our monthly budget. But once we’ve got our forever home paid off, college paid for, and retirement handled, we will definitely be giving much more to charities that are important to us.

 

Have a Plan for Your Tax Refund

Tax season can be quite annoying (especially if you find out you owe money rather than getting a refund, which we’ve had happen before), but what you do with your refund should factor in to your overall financial plan. Want to know the best thing I ever paid for with a tax refund? I’ll give you a hint: it’s round, sparkly, and I’m never the one who gets to use it.

7 Things to Do with Your Tax Refund | Crazy Together blog

Maria would probably agree that it’s my best purchase, too. What’s the best thing you ever did with a tax refund?

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Filed Under: Dave Ramsey, Money Tagged With: budget, Dave Ramsey, debt, money

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  1. Anika says

    February 18, 2018 at 9:11 pm

    We have a Fun/Practical Rotation with our tax refund. One year, we use it for a family vacation (fun) and the next we use it for home improvements, savings, etc… (practical). It seems to be a good balance for our family. And this is a fun year…San Diego, here we come!

    Reply
    • Rob Gavin says

      February 18, 2018 at 9:15 pm

      What a great system! We’ve mostly been basing our decisions on our needs, but vacations have factored in, too. I love this idea!

      Reply
  2. Elizabeth says

    February 19, 2018 at 10:12 am

    What I need to know is HOW to get a tax refund! LOL. But seriously. I swear every year I think I have it under control and then something happens (a child is born, we get a new job, we buy a house, etc) and I can’t seem to figure it out. Last year we owed quite a large amount of money too, which I was NOT happy about it and didn’t expect at all. I wish I knew how to alter our paychecks day to day to just break even or even get some (even if a little) money back at the end of the year.

    Reply
  3. Amanda says

    February 19, 2018 at 1:00 pm

    For some folks it’s not possible to get money back (only if we’d pay extra through the year). Every year we end up owing money, but we do budget for it and are calculations end up being pretty spot on.

    Reply
  4. Megan says

    February 19, 2018 at 2:18 pm

    I am wanting to sign up for your email newsletter, but it says page not working. Is there another place I can go to sign up?

    Reply
  5. Megan says

    February 19, 2018 at 2:19 pm

    I am wanting to sign up for your email newsletter, but it says page not working. Is there another place I can go to sign up? Thank you!

    Reply
    • Rob Gavin says

      February 25, 2018 at 2:20 pm

      Thanks for pointing that out, Megan! No idea what was going on there, but it works now.

      Reply
  6. Megan says

    February 21, 2018 at 10:39 am

    Great tips Rob! I also agree that it’s important to have some guilt free “fun” money stashed away, and tax refund is a great way to do that. I also like the idea of using it for vacations because then you don’t have to use your hard earned money to pay for them! (Or you can go on a nicer one!). Love the idea Anika had about rotations between fun stuff and responsible stuff! I’ve also split it half and half before when it’s larger.
    Also– that is one of the most beautiful engagement rings I have ever seen!! Absolutely love the setting, and is if rose gold?!? So stunning!! That was definitely a great use of a tax refund!

    Reply
    • Rob Gavin says

      February 25, 2018 at 2:22 pm

      Thanks for the great comment, Megan! Maria’s ring is definitely rose gold. She decided what she wanted and how she wanted it. I just wrote the check to the jeweler, haha! I wanted to make sure that she had the perfect ring and only she would know what that was. She still treasures it and loves when people compliment her on it, so I’ll be sure to let her know how much you love it!

      Reply
      • Megan says

        March 2, 2018 at 7:01 pm

        Well she definitely has good taste, it is beautiful! And you’re very smart to let her pick it out herself! I think too many men feel the pressure to have it when they propose, whereas most women (especially those of us that are control freaks!) would rather pick it out ourselves! I’m really glad to see somebody use rose gold, it’s my favorite metal but I’ve not seen it used for engagement rings before. Definitely love this idea and proud of Maria for thinking of it even though it’s not common!

        Reply
  7. DeeCee says

    March 29, 2018 at 10:59 am

    Until the last of our debt is paid off (in 11 months, if all goes accordingly!), I divide ours into three parts:

    1) 1/3 goes toward our debt.

    2) 1/3 goes toward some big bill (there’s always at least one) on the horizon…vacation plans, camp deposits for my kids, a much-needed household purchase or home improvement project.

    3) 1/3 goes into savings.

    Reply
    • Maria Gavin says

      April 4, 2018 at 12:27 pm

      Yay for being 11 months away from paying off the debt!

      Reply
  8. Panda says

    April 16, 2018 at 12:26 pm

    Here’s a tip – If you’re getting thousands in a refund at the end of the year, it means you just lost a year of investment gains. Or if you carried debt for that time, it means you paid interest for a few extra months.

    Get your withholding set up correctly and you’ll get a few hundred back every month, yours to spend as you get it instead of giving a free loan to the government.

    Reply
    • Maria Gavin says

      April 20, 2018 at 6:05 am

      That makes a lot of sense and it is the best strategy for most people. Our taxes are a little more complicated so we always play it safe and overpay on our taxes just to make sure that we don’t end up owing in the long run. Even this year, when we were so SURE that we were going to get a lot of money back, we only ended up with a few hundred dollars back.

      Reply
  9. ALTCP says

    April 20, 2018 at 12:35 am

    This list is amazing, Rob and Maria! I agree with all the insights you’ve shared here mainly paying down debt, building emergency refund and save for retirement. I started a dream fund a year ago, and it’s exactly like what you call “blow” money. Spending your money on something fun or something, I like such as a new espresso machine, or new smartphone has value too. I strongly agree that each one of us deserves to have a little fun in our lives and make purchases that wouldn’t make us feel guilty but instead happy.

    If I may add, you can also spend tax refund to buy insurance for long term care or health care needs, investing in yourself by improving your skills and home or car maintenance.

    Reply

 Rob and Maria from Crazy Together

A nerd and a perfectionist fall in love.
This is our story.

Rob's a self-proclaimed nerd, Maria is a fashion-conscious stay at home mama, Dessa the super-silly big sister and baby Harvey makes us a family of four.

We are so glad you stopped by. Grab a coffee and stay a while. We have a lot to share.

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