Thursday, March 5, 2009

What will you do with your tax refund?

I wanted to talk about how important a tax refund from the federal government can help you out on your way to being debt free. I know people who receive a refund and they go and think what can I buy first? There's nothing wrong with that if you are carrying no debt and you have an emergency fund in place. Flat screen TVs, new laptop computers, a new car, and whatever your heart desires! I want all of that stuff too! But I have to worry about $30000 worth of debt and regular bills like utilities, and without a job to boot! To be honest, it's hard not to say the hell with it and to hell with my credit score. My girlfriend has a good score! For me though, I have tried for too long and almost feel like I cant ruin my credit score and my timely bill paying ways.
It can be overwhelming! What to do? What to do? A guy like Dave Ramsey says that you need not worry about a credit score--from today forward you should only use cash and a debit card.

Back to the topic of getting a tax refund... Last year I paid off my 1999 Jeep Grand Cherokee about 10 months earlier than the payoff date. That felt great! Usually your house payment is a person's highest bill followed by a car payment. My car payment was set up to be $355.41 for seven years. That's a loooong time in retrospect! What if I had been able to save or invest that money. I admit it though, I grew up poor. I wanted a nice car that would give me sense of pride and probably some self worth. I have had a ton of cars over the years, always trading up to nicer and more expensive ones! It seems crazy now! I hadn't known what it was like not to have a car payment for a long time. Now its been a full year since I paid it off, and trust me-I don't miss it. Also with our refund, we paid off our Sears credit card--it had like a $1200 balance. So you can see how a refund can help you out tremendously on paying your debt down.

In a way, although our combined income was low this past year and we didn't get far on our debt snowball, I had plans to pay off a few credit cards. It would give us that much more of a push to achieve our goals and to just lower our monthly bill payouts. When I lost my job, the plans for the refund had to change. One quick side note--My girlfriend doesn't mind chipping in and paying off debt. I have to say that we wouldn't have made it as a family the last few months if it was not for her and her willingness to not be stingy with her paycheck.Shes not as gung ho as I am about all of this frugalness! I had to compromise, and now I know I should. Not because we "needed" anything major with our refund, but its just nice to be able to spend some money here and there. So she took $300 to do with as she pleased. I have $300 too, but I have not really used that much of it. I am the one who actually pays the bills. I think I am good at stretching a dollar, and they need to be stretched now until I can find a job!------The new plans for this year's refund is just to stretch it as far as possible. I did pay an extra $200 each on the two cards that Heather, my girlfriend, has in her name. That was a small triumph, and I am hoping that will help boost her score even higher. She is now right at 700!

In conclusion, the tax refund can become useful in paying off debt, getting ahead, or provide a safety net. You can build or pad your emergency fund. If you carry no debt, and you definitely need something for your family like a car-then go buy it. There is nothing wrong with spending a little to help ease that pressure from the previous year of saving and being frugal and doing without. Life has to have some balance! You just need to be able to control yourself and commit to a new way of life in order to achieve your goals and wealth building. Dave Ramsey says, " Live like no one else, so later you can "live" like no one else" !


  1. I somewhat see a different side to it (heh, hows that for a nice way to say I don't completely agree). If you're getting a tax refund every year, and it's quite're probably having too much money taken out of your paycheck monthly for taxes. So, say you got $2400 back on your taxes. That means you're giving the government $200/mo too much each month on your income tax. You've essentially given them a 0% interest loan for 12 months for $2400.

    I know it seems great to get that nice shot in the arm at the end of the year, but you could do the same by dropping $200 a month in a money market account or a CD for the same amount of time, and while small, at least get some interest off it. Plus, I think I'd rather have that extra $200/mo to use in my budget each month rather than having to wait for it until the end of the year because the government was holding it for me.

  2. Hey, Thanks for your comment first of all! You made some great points! I would love to be investing period! But I have a ton of debt! They say you have to tackle that first,before you can begin to build any wealth. Plus, being in a lower income bracket, you can receive an earned income credit for having a child. They give that once(in your refund)! RyansDad