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How to Spend a Tax Refund
Published on - February 2nd, 2012 (Modified on - February 3rd, 2012) (by Sarah Gilbert) This post is from staff writer Sarah Gilbert.
For the past two years doing taxes has not been bearable: it's been terrific! I've used an online e-filing service for several years now after many years of taking great pleasure — really! — in filling out the paper forms, just because it gets the money to me far more quickly.
Last January I began to fill out the online forms and, at some point, started glancing at the little status bar on the upper right corner. I'd filled in all my dependents and household income, and the number corresponding to my refund was more than double what I thought I might be able to expect. It ended up more than triple my expectations — about $7,500. It is, I've now learned, one of the significant benefits of having a spouse whose income is coming from a war zone, where it's not taxable. As my own freelance income had decreased, thanks to the extra work of holding down the house and three young children on my own, we were getting an earned income tax credit on top of the child tax credits for our boys.
This year, I'll get a tad bit less. I made a lot in 2011, but I'm not complaining a bit. I am, instead, working hard not to spend it unwisely by trying to follow the following rules:
1. Don't spend a single penny before the money arrives in your bank account.
Don't charge something on credit cards; don't promise to spend the money; don't put a deposit down with the rest due the day you expect the refund. Naturally, this one is very difficult in practice. This year, I had a fantastic deal on wool comforters made by a nice family on the outskirts of the city; lots off retail, with a third down in December and the rest due at the end of January. Surely my tax refund would arrive by then! And I really did need new comforters — the feathers coming out of my old one were so thick it looks like some geese are about to lay eggs under the bed. Everything worked out, but I had to juggle, and I felt a little awful using the comforter a few days before I expected the refund to arrive. I'd paid for it, but I'd have to make it up later.
You won't know what unexpected expense or nasty delay might cause you to be staring down a final payment or contract fulfillment without anything left in your bank account but hope. And then, you could end up using costly credit or financial shenanigans to make good on your promise.
2. Pick a debt that can reasonably be paid off with the tax refund. And do it!
Also, try negotiating the balance due. I'm still, faithfully but slowly, paying off long-ago-closed credit card accounts. Number two was 76% paid as of January 30. I called the day the money hit my account to negotiate a big payment that will satisfy the whole account — and I'm saving $1,000 off the original balance. (I could probably have worked it down further; my negotiation skills are great, until I wear out and let them "win." You could try harder!) Now I'm planning to spend March working out a payment plan for credit card number three — the last.
3. Put at least a third in a savings account, right away.
Consider it "someone else's money." (Your future needy self, of course!) If I leave the money in my regular checking account, I'll consider it fair game. And it's the perfect seed for the emergency fund you've been wanting to start. It's important that I separate the concepts of "savings" from "checking account buffer"; I'm far less likely to preserve the buffer, so I have to get it into a separate account. Preferably one that's harder to withdraw from. So I'm planning to get half of that savings into a Roth IRA. It's not a ton of money, but it's better than letting it sit where I can access it for emergencies that… aren't really.
4. Commit to yourself to buy things that will pay you back in savings.
Note I am not including "wardrobe investments" in this (unless perhaps we're talking about a wardrobe completely devoid of work boots, or something). I consider things such as upgraded windows (to save you energy costs), a couple of bus passes or other bulk purchase of something you use very frequently (to save you stress, having to make change, and get a bulk discount). Maybe a bike could replace a short commute, or a second car. (My stimulus check in 2008 went to a fancy mama bike that's saved me so many thousands of dollars I've stopped tracking.) Maybe you can buy a half of a cow from a local farmer, saving you tons all year on quality meat — or maybe a chest freezer to make that possible. This concept is served by my wool comforters; they're so freakishly warm that I'll be able to turn the furnace down several degrees at night.
5. Spend 5% or so on something nice.
I know, the "windfall" rules say to only spend 1% on splurges. But let's go crazy! It's just a tax refund, after all. Go out to eat with your family (once). Buy yourself a pretty raincoat or some new wool underwear (my favorite splurge). Just make sure you feel good about yourself and you stick to the 5%. Which leads me to the most important thing of all…
6. Make your budget before you do anything.
Well, it's okay to stick that 1/3 in the savings account first. But don't rush off and spend your splurge and your "investments" before you've sat down with a piece of paper or a spreadsheet and all your bills for the month. Go on: put in one column all your regular income and the tax return. Put in the other column all the regular bills (put those first!) and what you've hoped to spend your tax refund on. Let's not put off paying your home equity loan or your power bill because you have so much money, right? Make sure you've paid your bills first. I went so far as to forcing myself to record all the money I'd spent, down to the last bus ticket and coffee shop tip, over the month of January before I'd let myself spend any money on treats.
It's really effective (if you can hold yourself back) to let the debt payments and bill payments clear your bank account before you buy anything fun (even if that "fun" thing is a wool comforter or organic underwear for your kids: one thing on my list!).
7. Don't let yourself go shopping.
I rarely go shopping, because I rarely have much spare cash. Except for when I have spare cash! Then I love to shop. I shouldn't. Even when I'm not going crazy with the designer clothes and $300 boots, I'm going crazy with designer insulated coffee bottles. I can't help myself.
So I've found the best thing to do is to make a list of all that stuff I've been wanting — "needing" —for the past year, and prioritize. I've been waiting for those organic underwear the longest, and my nine-year-old has been complaining his old ones don't fit. So I need to buy that and not (for now) that cute pair of rain boots I've been longing for (but totally not needing). The wireless modem is about to fail, so we'll get that — but not the new iPod touch to replace the one with the marred screen. It still works and, after I made my list, I learned that it would cut into my savings funds. That's non-negotiable.
Make your list, do the math, then go shopping.
8. Think about investments in a new way.
Last year I spent part of my tax refund on tickets to two conferences, thinking that they'd be good for my "professional development." The first, a culinary professional conference (I write about food), turned out to be a bust — it was really fun, but I didn't meet anyone I couldn't have met online, and it was terrifically expensive. It's more of a moneymaker for the conference organizers than for the attendees. The second, a blogging conference, turned out to be amazing; I met a couple of people just by chance with whom I went on to do consulting projects and other writing gigs. I made twice as much in income from people I never would have met otherwise as I spent on the conference. And I made some friends I love dearly.
So I'm being more strategic about conferences this year, and focusing on the ones where I am comfortable my "career" is already established and will give me the opportunity to strengthen relationships with people I really care about. I'm heading to a writing conference a lot of my favorite literary editors will attend; I've discovered that connections (when they're authentic friendships) in literary journals and book publishing are far more important than in food writing. And the ideas I get from literary events turn into even more "output." I'll also repeat my visit to the blogging conference, ever more alert to the opportunities to share ideas and meet people with whom I can collaborate — and hopefully turn into more income, in addition to friendships. A happy person is both a better money maker and a person who needs less money, right?
The best part is that I can count all these expenses against my income on next year's taxes! No time like the present to start planning for next year.
We earmark most of ours for various savings goals we have, including saving for when we need to replace the car, car and home repair work, major expenses for the kids. We do put aside around 10% for travel and vacation so that's pretty much the fun aspect of it.
I am very curious as to these wool comforters. Hmmmm…
My list is already started. I do this will pretty much all "known windfalls" a few weeks before they are destined to show up. Take guesstimated amount and allot it to certain categories/expenditures. We can discuss and tweak this before the money even hits the banks account. When it shows up, I know where it's all going. The money is usually gone after a few quick transfers and 'check out' clicks, removing any temptation to deviate from the plan.
Course, a chunk of ours will be going to a new locally made quilted, latex inner'd mattress. Ahem… that may have already been purchased.
Why not just stick it in an IRA?
Of course, ours (when we have a refund) always goes right back out towards estimated taxes for the next year.
Your tax refund should never be that high. Adjust your W-4 by increasing your exemptions.
Jake, you're exactly right, but it's sort of confusing to figure out how to do that, especially when you're not sure what the next year holds. For example, am I buying or selling a home? Will I get a big raise? Will I leave my job for another one with substantially different pay? I would be interested in hearing more about how people decide the exemptions/withholding.
Use the IRS withholding calculator. http://www.irs.gov/individuals/article/0,,id=96196,00.html
The calculator lets you put in how much income and tax you have already paid for the year and estimate deductions. I put a reminder on my calendar every quarter to reevaluate and make any changes required.
The easiest way is take your finances from last year and maybe take a few educated guesses like factoring out any one time things, fill out the estimator tool.
Then if during the course of the year something drastic happens to change your tax situation, (big bonus, or bought a house, sold some stocks, etc) just fill out the estimate again based on the new info.
You'll get accurate information because it takes into account the income and taxes you've already done for the year, and will tell you how to adjust the numbers to end up on track for a $0 balance at year's end.
Emily and csdx, thanks so much!
This is really great timing! I just received my tax return and although it's nowhere near the amount listed in this post, it's a little something extra. Unfortunately, I have to spend part of it on a bridesmaid dress I wasn't counting on paying for until a later date. Oh well, at least I know where the money is going!
I think it's silly that the tax system is so confusing that it's difficult (for me at least) to anticipate my tax refund, which prevents me from being able to plan my finances with a complete picture. Due to that, I don't make any plans dependent on my refund, and just stick it into my savings account when I get it. Although I've been filing my own returns for a while, I suppose I should put in the time to understand exactly how it all goes down, so that it's not so "black box" to me. Until then, this advice is a great guide
While we don't spend it before we get it, we do earmark it well before we get it.
This year it is going towards a European vacation.
Last year it was our daughter's tuition.
I recommend people max their exemptions to make their paychecks bigger and their refunds smaller, but some just prefer letting the government hold their money so they won't spend it.
I treat it like savings. Put most of it in my EF. Being a single parent, my taxes vary from year to year. I adjusted my W4 to break even on the years I don't have a dependent but I don't change it for the years I have a dependent. Which means I get back a chunk of change those years. I don't want to keep messing with my withholdings every year so I am fine with a refund every other year.
We owe again this year, so I will not be getting a refund. My wife's part time job never takes out enough taxes, so we get hit every year. It's become par for the course, and the money is already set aside, but one of these years I would like to break even.
My husband and I have roughly equal salaries, so even at 0 federal exemptions we come out about $6K short on withholding. We pay quarterly to make up the excess.
Courtney – You can also have them withhold a certain dollar amount above and beyond the number of exemptions claimed. That's what I do. For example, married, 0 exemptions, plus $123. You can also claim "single" on your W-4 even if your married and filing jointly.
This is easier to me than having to remember to file quarterly.
You can – but along the same lines of over-withholding and "why let the government keep your money interest free?" why would we let them take it out of every paycheck when we can stick it in a savings account and earn a little interest on it? Granted last year it was only about $11, but you see the point.
I don't have to remember to file quarterly – I do the form in January and set up four equal automatic payments. It's much easier to do that online instead of having to submit forms through one or both of our HR departments.
One thing I usually do when I know I will get a windfall is go window shopping first if I have some big purchases to make. This helps me know exactly what the price is and where I have to get it. It also eliminates the temptation to buy other things while searching for what I need. This method has served me well in the past.
Frankly, I've never understood why people consider a tax refund to be some kind of yearend bonus that they can play with. Saving money is so difficult that, in my view, the refund should go automatically into savings.
In the days when we got interest on our money, it made no sense to have a tax refund–all it meant was poor planning, loaning money to the government and losing the opportunity interest.
See my comment #21 on how, even with the best of planning, things don't always work out perfectly. I do the estimated tax form every January and pay quarterly to make up the difference between what we have withheld and what we owe, but sometimes things happen late in the year that throw everything off.
My number one thing would be to look again at my W-4 to see why I had so much money come to me in a refund. Letting the government have an interest free loan isn't the best way to go.
I've seen people question about getting a return or refund at all, suggesting the lack of proper tax planning. I personally claim the maximum deductions, have near zero tax taken out of each pay check and I still receive money back-legally- every year. I get money back and have extra income in my check every payday What would you suggest I do to be "smarter" about my taxes?? In my case it's because of all the deductions I'm allowed and that my DH income is not taxable.
No refund this year; I actually owe money for the first time ever.
9. If you have an employer, submit a new W-4 and have less tax withheld in 2012! If you're self-employed, re-look at your planned 2012 tax installments. Then revisit 1-8 to consider what to do with the increase in take-home pay you've given yourself.
You should also assess your state income taxes and adjust withholding there, if appropriate, as well.
I'm hoping to save some and put some towards debt.
I would change the school of thought and say don't get a tax return. Change your deductions so you break even at the end of the year, and budget your monthly income/expenses appropriately.
I'm curous about only 5% towards splurges. Maybe I'm bad about spending, but we usually take a couple hundred and put it towards wants – this year we're going to get a dining room set that isn't on its 4th owner from the 70′s, badly scratched with ugly upholstry and wobbly legs. Sure we can make do with the set we have, so I know this is a want. The rest will go to savings/debt reduction/something responsible.
And yes, we usually aim to break even, but the last few years have had a lot of odd tax implications – buying a house, changing our daycare situation, DH getting laid off, etc.
Usually I put all the money into savings. It goes into the e-fund, savings account – or sometimes we use the money as *play* money for investments. (I call it play money because, well, we're playing the stock market with it).
We're going to pay cash for a house with our refund/entitlement. We live in a depressed area and can buy a habitable one for cheap. When you are living hand to mouth, having a house nobody can take away is a pretty desirable thing.
I really like this post, though I won't be following all of it =( I'm putting the bulk of my income tax return against my student loan and then the rest I'm going to use to save for a vacation to Africa in July.
Actually, it sounds like you are doing 2 and 5 Good for you — hope you enjoy your travels!
If you negotiate your debt down (or effectively cancel a portion of your debt)I would think that would result in taxable income. Granted, the tax on that income would be less than the debt cancelled so you would save some money, but not 100% of amount of debt written off. You should probably expect a 1099-c from the credit card company next year.
Is that so? that doesn't make sense to me.
I think in a lot of cases it is considered income.
This is good advice. I treat the occasional refund like I do all unexpected windfalls – I put the money to use in some way that it earns a return. I add a little to a dividend stock position, or pay some down on the mortgage, or take a class or certification to build my resume (or just to expand on something I want to learn – such as mechanics, etc.).
I deposit the money in my bank account when I get it and do nothing differently afterwards.
Peoples' first idea is always to spend it. Sitting on it is certainly better than spanking it all on stuff you wouldn't of normally bought, but for me investing or a high interest savings account rule supreme for tax refunds.
I prefer to owe money, as long as I can pay it
The first year I got married, I had a *huge* refund. Like $5k. Believe it or not, I was on pins and needles waiting for that huge sum of cash. I couldn't wait to get my W2′s fast enough (I usually run a quick check in August, so I knew I was in for a big one), I couldn't get my other tax docs fast enough, I couldn't file fast enough, and then there's the nervousness that I put the wrong bank account number in and that they'd have to mail my big payout.
What works for me? I'd prefer to owe the gman, oh, $100. I can pay him on my time (I've got until April 15) and there's just no stress and hurry. And if there's a screw-up, they have to fight me for my money, where as I have to fight them for my refund. (Or wait impatiently.)
It's correct in the title, but wrong several times in the article. The RETURN is the form you send in to the IRS. The REFUND is the money you get back.
Yes I know it's not important, but isn't tax time confusing enough already?loading....
My and my partner's refunds are 1) filling out our emergency fund ($1500 instead of the $1000+debt payoff that's usually suggested, because I'm unemployed and Partner has a variable income); 2) a car maintenance issue I should have dealt with over a year ago and forgot about. And then there's nothing left.
That being said, we may have an emergency on the horizon (moving 3 hours away to care for a suddenly-ill parent), so it's important to max out the EFund rather than pay off a debt like I'd prefer. The "up side?" to this emergency is that it will result in a rent-free living arrangement, so we will be able to max out the Efund again pretty quickly. So whether we move or not, our payment to debt can increase pretty significantly now, which is nice.
Great tips! My tax refund should be decent, especially since this year I'm again deducting my school and work expenses. I'll likely put half of whatever I get into savings and the other half to my highest interest rate student loan.
On the one hand, I'm psyched, thrilled, ecstatic that my tax refund will wipe out my credit card debt. On the other hand, I wish that money had been more available during the year.
I just forwarded this link to my husband — it was neat to see that our planning is really close to this guide, eventhough we didn't know about it beforehand. Thank you! (and I think it's funny…one of my "if-can-have-a-little-left-to-get-something-for-myself" items is underware, too…lol…)
ps — that bike is AWESOME!!!
This is a really helpful post–thanks for sharing such valuable financial tips. I tend to go to extremes with my tax refunds: I either spend all of it to pay off a credit card bill, or I throw all caution to the winds and go on a shopping spree. Perhaps I need to find a happy medium. I love your "spend 5% on something nice" rule–what a great compromise!


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Spent two weeks here in October and we're already planning our return,was literally the nicest place we have ever stayed. The complex was fully booked throughout our stay but you'd never know-there was zero problems with noise, space at the pool was never an issue and there were plenty of sunbeds. The staff were fantastic. From the moment we arrived... More
- Also Known As:
- Hotel Terraza Amadores Puerto Rico, Gran Canaria
- Official Description (provided by the hotel):
- Terraza de Amadores is 350 metres from Amadores Beach, in southern Gran Canaria. It offers an outdoor pool, and all apartments have a private balcony with superb Atlantic Ocean views.Each Amadores apartment has a living room with a TV and sofa bed. There is a safe, and a private bathroom with a shower. The well-equipped kitchenette comes with a fridge, microwave and coffee maker.The complex has a poolside bar and a snack bar. There is a supermarket on-site, and room service is available.Terraza de Amadores has a garden and a terrace. There is a billiard table and massage can be requested.You can hire a car at the complex, and free parking is available nearby. Anfi Tauro Golf Club is a 5-minute drive away. Internet connection, via modem, is offered in public areas for a supplement. ... more less
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GPS Coordinates
51°28'47", -03°10'50" show decimal
Google Earth
Cardiff Wales Map
Quay Street
Quay Street used to run alongside the banks of the river Taff, until it was diverted in the early 19th Century.
How to get here from Westgate Street:
Walk: Quay Street is off Westgate Street, opposite the Millennium Stadium entrance. (0.1 miles, 1m) +
Access: publicStatus: recognisableQuay Street
Smith And Jones
Filmed: 10 Aug 2006
The Doctor walks off leaving a very bewildered Martha.
Where to walk to next?
Westgate Street (The Runaway Bride, Out of Time, Sleeper). Walk west down the hill into Westgate Street. (0.1 miles, 1m)
Womanby Street (The Empty Child, The Age of Steel, The Warriors of Kudlak, Children of Earth: Day Two). Head west and turn right into Womanby Street. (0.1 miles, 1m)
St Mary's Street (Rose, Everything Changes, Day One, Small Worlds, The Runaway Bride, Turn Left). Head east up the hill to St. Mary's Street. (0.1 miles, 1m)
Additional locations as the crow flies:
Castle Arcade (End of Days): 0.05 miles.
High Street (Ghost Machine, The Runaway Bride, Children of Earth: Day One): 0.06 miles.
Castle Arcade (no 37) (End of Days): 0.06 miles.
Cardiff Market (Small Worlds): 0.09 miles.
In the News:
12 Aug 2006: The Sun - "Flash Doc's a Time lewd"
Further links about the location:
BBC Wales - Panoramic view of Queens Street
Related Stories
Smith And Jones [10 Aug 2006]: Martha chats on her mobile
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All screen captures are the copyright of the BBC and appear here as reference to illustrate the location in comparison with how it looked at the time of filming and the present day; no attempt is made to supercede this or any other copyright.
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2/08/2011: Being Baha'i In Iran: Where Friendship is Illegal - Huffington Post |
By Anthony Vance http://www.huffingtonpost.com/anthony-vance/iran-where-friendship-is-_b_819614.html This week, four U.S.-based Iranian Baha'is will come to Washington, D.C. to advocate for the release of their innocent relatives, who have been jailed solely due to their religious beliefs. Three of the prisoners they represent are serving 10-year sentences for being part of a national administrative group known as "The Friends," or Yaran in Farsi, while another prisoner is a young woman serving a four-year sentence for engaging in a project to teach underprivileged youth how to read and write. In efforts to shine light onto a dark and deplorable human rights situation, these relatives will meet with the Chair of the House Foreign Affairs Committee, Representative Ileana Ros-Lehtinen; Senator Mark Kirk; Congressman Frank Wolf; as well as officials at the State Department, the U.S. Commission on International Religious Freedom and members of the press. Tags: |