Looking Forward To That Refund Check?

Are you looking forward to a tax refund this year? I'm one of those people that really likes to get a tax refund because it's like a bonus chunk of money! Whenever I tell my dad that he says, "The government is getting an interest free loan on YOUR MONEY!" He goes on to say that if I'm getting a refund back each year then too much money is getting withheld from my paycheck every month and that money could be going to things I need each month (or into savings and collecting interest for me) instead of adding up and collecting interest for the government. And, really, I know he's right. He usually always is... but, I still can't help but get a little happy when I get that fat check back.

I mean, it is NICE.

So once that check arrives, the question then becomes: "Should I save it, spend it, or pay off debt?" You probably know what I'm going to recommend... yep, pay off that debt. It can be hard to put that money towards the debt (I know how hard that is!) but it'll just help to get the debt paid off that much faster which is the goal, and, oh, SUCH an AMAZING accomplishment!

Debt-free living is where IT IS AT.

Today, Mary Ann is sharing what her and her husband do with their tax refund (below).

image courtesy of mary ann

My husband and I spent our early years in a cycle of spending and then every spring we would pay off our debts with our income tax refund. This is not a practice I endorse today, especially given the economic state of our country. We have worked really hard to change that dynamic and the spending cycle. Today we live within (and below) our means since we are preparing for retirement. The benefit of our debt reduction is that we have many more choices as we prepare for the small windfall coming our way once our taxes are filed.

In 2010, it was reported that the average income tax refund was over $3,000 and that is up 10 percent from a year before. Since the 2010 Tax Relief Act extends through the end of 2012 many of us will see some extra money this spring.

This is what we do to maximize our tax refund:

Apply credits and itemize

I've learned that itemizing deductions is the way to increase our refund check. In order to make some smart choices, I consulted the IRS calculator. This gave me a general idea of what to expect for our return and once I've finalized and filed our tax return we like to take the time to think about and discuss what to do with the money that will be coming our way.

Analyze debt and pay off debt first

Although we have tried very hard to reduce our debt load, unexpected things do pop up. So we survey our financial situation and organize our debts into two categories, those with high interest rates and those with low interest rates. Thankfully, we are no longer saddled with college or car loans and while our first instinct may be to use the windfall for that big screen TV or a trip to Europe that we have been wanting, we know now that living within and below our means is the only way we will truly achieve financial freedom in our retirement.

It has taken many years and a lot of discipline to get where we are today. We've learned that making small strides towards financial security gives us a great feeling of accomplishment.

About Mary Ann: Mary Ann Rosenthal is a grandmother to four beautiful children under the age of five. She is dedicated to helping her friends and family save money and works with her son Aaron at CyberMondayDeals.com. She is also an artist, writer and aspiring photographer living in Saint Augustine, Florida.

Thanks Mary Ann!

Are you expecting a tax refund this year? What are your plans for the money? Will you be paying down your debt or going on a splurge?

Comments

[Hana]

Just did my taxes yesterday, and I plan to use it all to pay off my line of credit that I racked up again (boo). Can't wait to see that number turn into a big fat $0!

[Beth]

This was the first refund I've received in a few years (had to pay out as a contractor before--no fun), and as soon as I got mine, I called up one of my credit card companies to make sure there weren't any hidden annual fees or anything like that. Then, I paid the whole card off! It took up all of my refund, but it was SO worth it to see the balance go to $0. I still have a student loan and another credit card to pay off, but I'm getting there!

[Anna Newell Jones]

That's so awesome!

[Katie]

Just paid off all my debt in December, so my whole refund is going into my car replacement fund! (Okay, maybe I will buy a piece of cheesecake, too.)

[nikkiana]

Being self-employed, tax season tends to just make me growly because while everyone else is excited about their refunds and talking about what they're going to spend that money they'd forgotten about and are now getting back, I'm either writing a check to the IRS or figuring out what a payment plan is because I'm too broke to write a check to the IRS.

But then I remind myself that there are perks to this life I've chosen... It's just not in the tax season. ;)

[Ella]

Here in Norway we get to know our tax refund in march/april and it is paid in june. I will put the whole of it into my emergency fund if I get anything that is :-)

[Kelly]

I'm using my refund to rejoin my gym and pay for a beach trip (done on the cheap!) this summer. The rest is going straight to my Visa bill. I was pretty torn about not using the entire thing to pay on my debt, it felt like cheating, then I remembered it's okay to save up for something special and I really miss working out at the gym.

[Lisa]

Every bit of it to debt. Feels oddly good. Nice to see the number going down!!!!

[Dorothy]

I will be using it to complete our buffer, so we can start applying the You Need A Budget Rule 4. http://www.youneedabudget.com/method/rule-four

We have been using YNAB since the end of 2006, when it was still a spreadsheet.

Then, after that, we will focus on the last of our debt, and build an emergency fund - split into a 50/50 snowball.

[Anna Newell Jones]

That's awesome Katie! I'm glad you're giving yourself a small treat too;)

[Anna Newell Jones]

Health is important too Kelly. I figure if you don't take care of yourself now you may end up paying even more down the road with medicine, medical bills, & discomfort.

[Anna Newell Jones]

So good to hear that Lisa! Yes, such a great feeling!!

[Danielle]

My husband an I used all of it to pay off 2 credit card bills!! They were two of our lowest (but also 2 of the 3 racking up interest). I feel so good about having those two down and it gave me such motivation to pay off the rest of our debt!

[Anna Newell Jones]

Congratulations Danielle!! That's huge!!

[Jenn]

My husband and I will be getting a nice chunk of change for our refund this year thanks to the birth of our daughter. We plan to pay off both of our credit cards, save a large amount and then spend some on a new tv (we still own the tv my husband bought in college). I think we have a pretty good plan set up and it will feel great to have that card paid off. Then, I can roll those payments onto my next debt!!