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Don’t Blow Your Tax Refund

wise things to buy with tax refunds According to the Internal Revenue Service, 75% of tax payers will get a refund this year. Since the average refund is almost $2800, it’s time to start thinking about how to put that money to good use. A tax refund is not a windfall or a gift from the government. It’s your money, earned from work, that Uncle Sam has been holding all year long. Don’t blow your tax refund by treating it like found money.

Pay Off Debt

One of the best uses of a tax refund has to be paying off debt. While government won’t be paying any interest for holding your money, you’ve likely been paying interest to your creditors. Having a couple of thousand dollars to throw at credit card bills or high interest loans can be a huge morale boost for those struggling to get out from under their debt.

Start Or Top Off An Emergency Fund

We all know that not having anything in savings for emergencies is often the reason people go into debt. Most experts suggest saving at least three months of necessary expenses, but that number often seems too overwhelming for people who live paycheck to paycheck. Even having $500 or $1000 in an emergency fund is a great place to start and would likely cover an emergency car repair or trip to the doctor.

Invest Your Refund

If you aren’t stuck in consumer debt and already have an emergency fund, congratulations! You are doing better than the roughly 42% of Americans who carry credit card balances. Getting a tax refund is the perfect opportunity to invest for the future. I actually get a little bit giddy when I find extra money to invest, and luckily, there are a ton of ways to invest money wisely.

Traditional or Roth IRA

You have until April 15th of this year to max out an IRA for 2014 or you could start funding one for 2015. Not sure which is better? You aren’t alone. The traditional vs Roth IRA question is answered differently depending on who you ask. I won’t pick sides. It’s much better to invest on one or the other than not invest at all.

There are a variety of places to open an IRA. I use Vanguard and have always been very happy with their service and low fees. If you aren’t sure what to pick for investments, they have a variety of tools to help. A good rule of thumb is to pick a low cost index fund or target retirement fund until you are able to study and make more informed decisions.

Invest Outside of Retirement Funds

I hope to retire before age 59.5, which means I need another source of income before withdrawing from my retirement accounts. I’ve chosen to invest in real estate and with Betterment.

Real estate isn’t for the faint of heart. You really need much more than $2800 before considering an investment property, but that amount could make a nice start or addition if you’ve already started saving for this goal.

Betterment uses mostly automation and passive investing based on your risk tolerance. The fees are very reasonable, especially if you agree to automatically investing at least $100 a month. You can read more about my first year with Betterment here.

Get Your Legal House In Order

Nobody likes thinking about dying, but guess what? Death and taxes are about the only guarantees in life. Seeing my younger cousin pass suddenly last year certainly reminds me that we don’t know when our time will be up. If you have anyone who depends on your income, especially small children, make sure life insurance and a will are in place.

Jim and I made our will with Legal Zoom years ago and have updated it a couple of times. While not exactly pleasant, it was pretty painless and only took a couple of hours. We also got Living Wills and Power of Attorney documents drawn up so no one will have to ever decide what we might have wanted should we become incapacitated. Best of all, using a site like Legal Zoom is cheap, so you’ll still have refund money left over for other things.

Invest in Your Health

If you’ve been putting of medical or dental procedures due to finances, a tax refund is a great way to get back on track. We have tons of people who come in for eye exams and buy glasses or contacts with tax refund money. You might even be able to swing a cash discount by paying up front.

Home Repairs

Home repairs sometimes fall in the bucket with doctor visits as things we tend to put off if the money isn’t there. While I wouldn’t recommend running out to buy a smart refrigerator, you could avoid financing and use your tax refund to replace an appliance on it’s last legs. Also, upgrading things like insulation or windows will make your home worth more while saving on energy.

Can’t I Have A Little Fun?

Absolutely, spend your tax refund on anything you want. Just make sure you’ve considered all the options. So many people spend tons of effort trying to get a leg up on the vicious cycle of debt, paycheck to paycheck, and little savings. At tax refund time, people often feel they deserve a little treat because having no money is hard. I’ve been there. While we haven’t had a tax refund in a long time, I can remember past refunds being used for skis, clothes, and even a trip to Vegas!

Before you go out and blow your tax refund on a flat screen TV or new wardrobe, remember how it feels to never have enough money at the end of the month. New shoes or golf clubs might seem better for a moment, but the new wears off pretty quickly when you don’t have your financial life in order. Use your tax refund wisely!

Are you getting a tax refund? How will you spend it? Do you ever just want to give up on all this saving crap and bet it all on black?

Image: Freedigitalphotos.net/Yiftach




About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.


  1. I should get about $1000 back this year, which is a lot for me (as a single-no-kids person I don’t have a ton of deductions so I don’t usually get much of a refund, if at all.) I’m using a couple hundred dollars for fun, and putting the rest in my Roth…but I need to get it and get that done soon because the longer I wait for the refund the more I keep coming up with other things I could do that would be more immediately gratifying πŸ™‚

    • Yes, do the Roth first by all means. It is tempting to dream about other things that would be more fun, but you’ll be glad later on if you invest it.

  2. “It’s your money, earned from work, that Uncle Sam has been holding all year long.” $2,800 in returns is a hefty average refund. Makes me think people need to adjust their withholding so they have more of their money all year long instead of Uncle Sam. That number needs to be closer to zero.

    • If I could hit zero, I would be so happy. It’s usually us owing, but I think we might get money back this year because of our rental property expenses. I still honestly don’t know.

  3. I’m still missing a bunch of forms, but if my guesses are right, we should be getting a small refund . I’m so excited about the refund because half way through the year I found out Hubs’ withholding was all screwed up and if left unchanged we would have owed several thousand. Phew! That was close!
    I’m really hoping to have my student loans paid off by the time I get the refund. It would be so sweet to use it to start saving for a house. That would be the cherry on top of paying off all these loans!

  4. We likely won’t be getting much of anything back at all and likely will owe – I’m just hoping it’s not too much! If we do get anything back we’ll be boring and likely just throw it in a SEP for one of us. If we get more back than I’m anticipating we might hold a little back for our vacation fund though the majority will still be invested.

    • I almost put travel in as a use for a refund, but most people probably need more encouragement toward the other categories. If we got more than expected, we’d probably put some in the travel fund too.

  5. You nailed my biggest issue with tax refunds: people who blow it without thinking of all of the possibilities and weighing the consequences. People see “free money” (yeah….right) and think PAR-TAY time.

  6. I have no idea yet. I sure hope so, or at least break even. If I get anything back it goes right back into my estimated tax savings account for the next round of estimated tax payments.

    • Ah, the life of the estimated tax payer. I’m glad we are able to do that, but it was much simpler, at least tax wise, to be an employee with a w2. I wouldn’t go back though.

  7. Normally we do not get a refund. We deliberately try to owe or break even. But this year we get a hefty refund due to miscalculation on the gain from the sale of a couple of rental properties. Hopefully we’ll get the refund in time to make the first quarterly estimated payment…no fun there. Otherwise, it would go right into our investment account. The thing I have to shake my head at is that so many people think the government is giving them this money when it is simply a payment of their own money they let the government have interest free each year. $2800 is over $200 a month that could certainly be used by many people to pay down debt, contribute to and IRA, beef up emergency fund, etc. all which you mentioned. I’ve read that the government is going to delay refunds this year, supposedly due to computer upgrades going on, so now it keeps your money interest free for even longer.

    • I believe we will get a refund this year as well because of rental property, and we will also use it toward the next estimate. I guess tax refunds are good for the people who would not save the extra $200 a month if they had it, as long as they don’t go blow it on something stupid.

  8. I’m going straight to the casino with mine. Woot!

    Kidding. I will probably just put mine in retirement. We are also contemplating a new roof on one of our rentals so that is another option.

    • There is a little reservation casino on my way home from work on Thursdays. It is super crowded at the first of the month, and I’ve always wondered what it must feel like to go bet your whole paycheck and how awful it must feel the next day!

  9. I’m so glad that you and Jim got living wills and powers of attorney taken care of too. So important and often overlooked. These are all great ideas. As you said, this isn’t really free money from the government, which is how many tend to view it. It’s money you earned so use it on where it is most needed. I’m getting things organized for my accountant and we’ll see where we end up. πŸ™‚

    • I am still in the organizing stage as well. Every time I think I have it all together, something else shows up in the mail.

  10. $2,800 average refund? Wow! These are some great suggestions of responsible ways to use that money.

    I’m not sure if we will get anything back this year. We’re still waiting on some forms regarding our capital gains/losses to know for sure. If we do get anything back, I will use it as an extra payment on my student loans.

  11. In the past we’ve definitely been the kind to spend it on something FUN!! This year though, the full refund will go towards funding our Endowment to help us retire early. All of the fun from years past can’t be near the fun of leaving the rat race once and for all!!

  12. I WISH that I had a tax refund to worry about not blowing. The last six years we always seem to owe money or just break even, part of the “joys” of making more money. I miss the days when I knew I would get a March “bonus” from the government.

    • We’ve had to pay for as long as I remember, but I think we might break even or get a refund this year. Of course, I could be absolutely wrong. I have a doctorate degree, but I can’t ever figure out my own taxes.

  13. Investing the tax refund is what I am going to do with my tax refund. At the end of the day, nothing would satisfy my feeling than having my portfolio grown.



  14. TBD whether or not we’ll get a refund, but we usually do. We (of course) save it :), which I know is boring, but hey, that’s just how we roll.

  15. Haven’t done my taxes yet – still gathering documents and reconciling things. Last year we paid in a ridiculous amount so hopefully our tax planning this year pays off in the form of a refund. I definitely won’t blow it and will be grateful just to have some money headed my way!

    • I realize that getting a refund means you paid too much, but it is much nicer than having an unexpected payment, even if the math says otherwise!

  16. We always spend our refunds on necessities. It feels good knowing we paid for things we needed with cash, bigger expenses that might otherwise have drained our emergency fund or went on a credit card.

  17. Our tax refund will go towards credit card debt. That’s some fun right there;0) I’m hoping to get started on taxes today!

  18. It makes sense to payoff credit card debt and save on those rising interest payments. It is also an excellent suggestion to take care of health issues such as eyeglasses and dental work since co-payments for these health services tend to be high.

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