I finally did my taxes. Some people dread tax time. Others look forward to it. I hate the processing of filing my taxes, but I always look forward to getting a tax return. In my opinion, the higher the refund the better. I know, I know, getting a big refund means that I lent the Government money at 0% interest rate over the previous year. Moreover, had I taken that money and invested it, I could have been much better. Indeed, I just provided my monthly Dividend Income Report for March 2018. Had I invested that money, my dividends and forward annual dividends in that report would have been higher. However, I would rather be in the position of getting a refund than paying money. Thankfully, I’ve always gotten a refund and I hope that trend continues in the future. But, that’s then, and this is now. Let’s talk about what I did with my tax refund.
Size Of Tax Refund
This year, I received the biggest refund I have ever gotten. The IRS gave me back $5550. I was super excited. It goes to show you the benefit of real estate investing. That’s one of the major differences about my tax return than in previous years. I’m not sure what future years will bring, but with that kind of money, I wanted to make sure I put it to good use.
Because I still have debt, that recurring question about whether I should pay down debt or invest keeps coming up. I got tired of going back and forth on that, so this year, I made a resolution to pay off my student loan. But my financial plan for the year did not take into account the huge size of my tax refund.
How I Spent My Tax Refund
Rather than take an all or nothing approach, I decided to spread out my tax refund across my financial life. Hopefully, one day when I completely eliminate debt, I won’t have to worry about deciding between investing or paying off debt. At that point, all my funds can go towards investing and building wealth. But, alas, that day has not yet arrived. So, here is what I did with my tax refund.
1. Paid Off Credit Card Balance – $500
As discussed in my most recent Dividend Income Report, I was using my credit card for everyday expenses. So, by the end of March, I had around $500 in credit card debt. I like to maintain a $0 balance on my credit card because it helps to maintain my excellent credit score. So, the first thing I did was bring my balance back down to zero. I really hated doing this. I wish I never had such a huge balance on my credit card, but it is what it is.
2. Rebuild My Emergency Fund – $1500
Prior to getting my refund, I depleted my emergency fund to about $20. The sad thing is that I didn’t use my emergency fund for emergencies. That is, unless you call going to the bar or eating out every day an emergency. But, thanks to the IRS, my starter emergency fund is back to a healthy $1500.
It’s certainly possible, or even probable, that the reason I spent so much money in March is because I knew I was going to be getting a huge tax return. I actually did my return earlier, but didn’t file it because Acorns didn’t release their info until March 15. So, I had to wait at least until then. It turned out that I didn’t even get any paperwork from Acorns because I didn’t make enough last year. Believe it or not, I’m thinking about getting rid of Acorns for the simple fact that I don’t want to have to wait so late to file my taxes. Probably not the best reason to stop using Acorns, but also probably not the worst either.
3. Pay Down Student Loan Debt – $1100
I can’t wait to get rid of my student loans. They aren’t costing me a lot financially. After all, the interest rate is 2.625% and the monthly payment is $97.61. However, I really hate it when I get extra money and have to decide if I want to pay down my student loan or invest. So, I figure that once it’s gone, I really won’t have that dilemma anymore.
In accordance with my financial plan, I plan on paying $2000 towards my student loans every month. However, in March, I was only able to pay $850 in addition to the minimum payment of $97.61. So that left me short about $1100. I used $1100 of my tax refund to make up the difference. So, the grand total payment in March was $2047.61. This will keep me on pace to paying off my student loans by the end of October.
The Debt Tracker has been updated accordingly.
4. Save For A Vacation – $1250
I plan on taking a vacation in June. I have never been to Spain, and want to visit Barcelona. The last time I took a trip to Europe, I spent a small fortune and put it all on the credit card. I was paying for that vacation months after it ended. I don’t want to do that again. So, this time, I figure I would do the prudent thing and put money aside before hand. Despite what might appear to be my lavish spending habits, I’m really quite cheap. Even if the overall trip costs a few hundred dollars more, I’ll be in a position to finance the whole trip with cash. Moreover, since I’m already overseas, it won’t be as expensive as if I was traveling to Spain from the United States.
I’m really looking forward to enjoying Spain, assuming that’s where I decide to go. I’ve already been to Paris and England. Switzerland is a possibility. I just can’t decide. Decisions, decisions.
5. Purchase Additional Shares In Emerson Electric – $700
On January 20, 2018, I announced that I recently bought EMR shares. At the time, I purchased $250 worth of EMR for about 3.2 shares. With my tax refund, I wanted to build my position in EMR. So, I added $700 worth of EMR shares.
EMR is a free DRIP with Computershare, so the purchase didn’t go through right away. I have to wait until Computershare makes a batch purchase, but I’m completely fine with that. I’m invested for the long term so the short term fluctuations of the market doesn’t phase me one bit.
6. Bought Two New Stocks – $500
As you may know, I’ve been uneasy about the upcoming transition of Capital One Investing to E*trade. Most of my holdings are at Capital One Investing. I won’t go into it again here, but sufficed to say, I’ve been looking for an alternative brokerage in case E*Trade doesn’t offer the same pricing options as I have with Capital One Investing. I think I found what appears to be an almost perfect solution with M1 Finance, which I detailed in my post entitled, M1 Finance For Dividend Investing.
So, I wanted to give M1 Finance a try, but wasn’t quite ready to transition from Capital One Investing just yet. I’m waiting for the acquisition to take effect before I decide to make the switch. But, M1 Finance was too intriguing. I decided to add two more stocks to my dividend portfolio. Unlike any minor holdings I have in Robinhood, these two stocks will be tracked on this blog.
With my tax refund, I purchased shares in Kimberly Clark and McDonalds. These two stocks make up my pie which I called Dividend Freedom Fund. They are evenly weighted, which the program will automatically do with each contribution. I was sure I wanted to add Kimberly Clark but couldn’t decide between Verizon and McDonalds. I’m sure I’ll be adding Verizon to my portfolio in the future. Also, eventually, I might move my entire holding from Capital One Investing and/or E*Trade to M1 Finance.
Finally, I’ve committed to contributing $200 to my Dividend Freedom Fund, which is separate from the $1010 that I already contribute to my dividend portfolio. So, this brings my total contribution to my dividend portfolio to $1210 per month.
How I Didn’t Spend My Tax Refund
One of the things I was seriously considering doing was saving most of my tax refund to purchase a new car. I’m going to need a car beginning this summer and that $5000 would have gone a long way. I do expect to have access to about $10000 later in the year, and so one option would be to finance a car with the expectation that I would pay it off by year’s end, or within a year. I’m not sure.
The reason I didn’t want to just save the $5000 is because I know myself. Much like what I did in March, I would probably justify spending the money little by little until it was gone. So, rather than risk wasting the money, I figure I would put it to good use, as I did above, and then deal with the car situation when it arises. I do know it’s good to plan ahead. Obviously, I realize I’m going to need a car, but I fully expect to be able to deal with that circumstance when the time comes.
The other thing I could have done was save the tax refund to cover any possible vacancies in my rental property. My tenant’s lease is up in September and I’m not sure yet if there will be a vacancy. But I didn’t save the money to cover such vacancy for the same reason why I didn’t save it to buy a car. Besides, worst case scenario, I should be able to cover any vacancy with my regular paycheck.
Conclusion
There you have it. I got the biggest tax refund I’ve ever gotten and that gave me options to do several things with the money. Rather than choosing to pay off debt or invest, I decided to do a little bit of both. Who says it has to be all or nothing?
What do you think? What would you have done with the tax refund? Did you get a tax refund this year? If so, what are you planning on doing with yours?
Let me know your thoughts by commenting below.
I think you had a reasonable approach to deploying the new capital DP. I have been looking to add to KMB myself. Tom
Tom @ Dividends Diversify recently posted…You Gotta Eat
I thought so too. I just can’t wait for the time when all I have to decide is which investments to put the money in rather than whether to pay off debt or invest.
Nice job throwing that money at everything you wanted to do with it. I’m still procrastinating on my taxes, mainly because I try to cut it so close to zero (striving to hit + or – 100) that I’m scared I’ll owe a little and keep putting it off.
brian @ singledadmoney recently posted…Net Worth Update – MAR 2018 – $20,328 (+$508)
Hopefully you don’t owe anything on Taxes Brian. You never know – you might just get a refund.
Nice tax refund. What relates to MCD hate their negative equity, so no go for me 🙂 Also their questionable L/T perspective with world turning to more healthier food. MCD is practically the synonym of unhealthy food. Cannot understand how companies could operate with negative equity. That means that they have more debt then they have asset 🙁 KMB looks a bit better. Good products that should be around for 50-100y unless someone will invent other practical way to wipe your butt in the toilet 😀 After some time KMB equity is no more negative, that a good turn, but still remains very low only 4%. And their sales looks flat compared to dropping in MCD sales. Ok MCD increase their net income by decreasing cost even more, but for how long. Sooner or later they will run out of cost to cut. Also take into account that cutting cost especially on staff cost has negative effect on you sale and this creates downward spiral. The more you cut cost, the more you lose sales and you need to cut more cost and so on and so forth. Anyhow all in all skeptical on MCD and neutral on KMB 🙂
p2035 recently posted…2018 Q1 Sport
Interesting point p2035. I initially didn’t give MCD much consideration in part because the product is associated with unhealthy food and the trend is to move towards healthy food. However, the company is transitioning from owning property to franchising more of their stores and that will likely result in increased profits. Their history of rising dividends, while is no guarantee for the future, is something that cannot be ignored. It was a tough choice and kind of a last minute decision, but I’m ok with MCD. Worst case scenario is that I sell out of the position for a loss. But given the fact that it won’t comprise an overwhelming weight of my current portfolio, I’m not worried.
Well people just might keep on eating at MCD you never know 😉 But im against Oil companies, MCD, PEP and KO. Just dont see their bussiness in L/T perspective 🙂 They might be next Kodak or Nokia. Wonder if there was companies with 30-50y of dividend increase going bust in the past.
p2035 recently posted…2018 Q1 Sport
I’ll probably cross that bridge when I get there, but KO and MCD have proven that they are able to adapt to current times, but I guess only time will tell if that remains true.
Sorry for being such a negative, but I would not call adoption when sales goes stably down for the past 5y. MCD sales fall from 28bn to 22bn -20% and KO from 46bn to 35bn -25%. Im not buying their ‘restructurisation’ excuse. For some reason both of them are doing same ‘restructurisation’. Its just a way to hide the truth that less and less people buys coca cola and eats at macdonalds 😉 Yes they manage to squeeze more profits by cutting more cost then sale decline, but as I wrote before its a downward spiral. Lets have a bet 🙂 I bet that one of them will freeze their dividend increase in next 10y 🙂
p2035 recently posted…2018 Q1 Sport
It’s all good p2035 and no need to bet. You might very well be right. I do think there is value in buying both companies, but understand that different investors think differently. If either company gets to the point where they would have to cut dividends, that’s the time I would consider selling. But after I move my portfolio to M1 Finance, I’ll be able to automatically and easily get the asset allocation I want. Neither company will be such a huge part of my portfolio where if they were to tank, it would be so detrimental. That’s the beauty of diversification and the importance of asset allocation. But, like I said, you might very well be right. Thanks as always for the comments p2035.
Looks like I maxed out the reply buttin 😀 Yes diversification is definaly very good. If im put of investment options could consider adding one or two shares of these comapies. As you said you may exit if things will go bad 🙂 In M/T perspective their div growth is secured.
p2035 recently posted…2018 Q1 Sport
No worries on the reply button p2035. It was a good discussion.
Awesome DP. i finished my tax returns two weeks ago … only get a small change in my 1099 DIV 🙁 Had to do an amended return. Completed now. We might use portion of our tax refunds for a planned vacation 🙂 Rest goes to our joint savings account.
dividendgeek recently posted…March 2018 : Investment Portfolio Status
Cool Geek. One of the benefits of doing my tax return so late is that I never have to do an amended ta return. I’m glad that you were able to get it done and able to save a portion of it. But it’s always good to enjoy some of the money too, so using a portion of it on a vacation is also a great option.
nice port
great way to diversify your tax return! haha
hopefully the car will hold out and you can get one once your student loan is paid off that would make it easier.
keep it up
cheers
passivecanadianincome recently posted…Giving – Don’t forget to give back
Yea, I don’t have a car at the moment so will definitely have to get one before the student loans are paid off. But, once I pay off the student loans, I will turn my attention to paying off the car which should be relatively quick, especially if I’m paying it down at a rate of $2000 per month.
That’s a sizable tax refund. I think you did a good job of dividing that cash inflow into areas that matter.
I just did my taxes and have about $2200 coming my way. I’ll use part of that to finish maxing out my 2017 ROTH IRA and then pay off my cc bill for the month with the rest. Had the 2nd payment for my wedding venue on there so it’s bigger than usual.
timeinthemarket recently posted…Time in the Market dividend review – March 2018 – mutual fund dividends
Those are great uses for your taxes and $2200 is no small amount. Glad you were able to get a bigger refund than usual. But better than the alternative!
I like how you spent the money. Basically went through and hit all the bases. Eliminate or cut down different debt, maintain the emergency fund, and invest for the future. Your portfolio will thank you. We already see all the growth it has been getting lately. Will also be nice when those student loans are completely paid off. Cheers!
Thanks Daze. I might throw a party when the student loans are all gone. I will definitely write about it.
DP –
I fricken love it. Spreading the wealth to everything that builds your wealth. Getting rid of debt, emergency savings, buying stock LETS GO!!! Kill it DP, keep KILLING IT!
-Lanny
Thanks Lanny. Hopefully my next influx of cash will only be used to build wealth but we will see.
Vacations are never a bad way to spend money! Don’t think I’ve ever regret any money I’ve put towards a good holiday. I’d have put the rest in stocks for sure, but I don’t stress about my current debt level too much.
Kimberly Clark sounds like a decent investment, will have to put it on my watchlist. I’m surprised at what a great run McDonalds has had over the past couple of years, hope it keeps it up for you!
Cheers, Gary
Hey Gary. I was hesitant about buying McDonalds because they are in the fast food industry and I know there’s a trend to get healthier food. But, then I started looking more at the numbers, how they performed during the last recession, their strong economic moat, their global presence, and their dividend growth history, and I was impressed. I’m also quite familiar with McDonalds since I go there on occasion. So it made sense. For better or for worse, I think it’s a good investment, but time will tell.
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DP, I like your strategy. You knocked out some debt, prepared for the future, and you had/saved for a little fun. Sounds like a tax refund well spent to me!
Money Hungry recently posted…Dividend Income March 2018
MH I’m sure there are a lot of other things I could have done with the tax refund but I completely agree with you that I spent the money well.
Hi DP,
I like the way you distributed the tax return – multiple accounts got something from it and you are better off now.
On a separate note, I like that you admit that it’s sometimes hard to adhere to a strict budget and you spend some of your emergency fund or go into negative credit card balance. I think most of us sometimes do that but not everybody is able to admit it publicly! 😀
Good luck with your investments!
-BI
Thanks BI. There’s no point in pretending or hiding. I like the blog because it keeps me accountable. I do maintain some level of privacy, but I try to ensure that whatever I represent on this blog is the truth. I’m by no means perfect, but the fact that I might have faltered one month or two doesn’t mean I should give up or abandon my overall strategy. Really appreciate the comment and the insight.
Wow, this is impressive. I wish I could do the same with my tax refund. But I’m torn between scattering my cash back among investments, paying a debt, building emergency refund and spending it to have or just focusing on one thing like putting everything on my credit card debt or save it for my possible healthcare and long term care expenses. I also thought about setting up a dream fund, which I could use to buy big-ticket things like a home, car or use it to travel for a month or so. Your article got me thinking what’s the best way to spend my tax refund. I hope I’ll make the best-educated decision soon.
ALTCP recently posted…13 Smart Ways to Spend Tax Refund in 2018
I’m glad I was able to inspire you ALTCP. All those options are worthwhile and important which is why, sometimes, personal finance can be hard. Of course, I’m no financial adviser. Dave Ramsey’s approach is to have a starter emergency fund of $1000 and then putting everything towards paying off debt from smallest to largest. I like some of the things that Dave Ramsey says and try to adopt it for my own personal situation. But I just don’t listen to Dave Ramsey. I adopt principles from Ric Edelman, Ramit Sethi, and even David Bach’s principle on paying yourself first (I realize he didn’t invent it but I learnt it from him and so I give him credit).
I think a consistency among all these financial gurus is that you really want to tackle that credit card debt if it’s high interest debt. That’s because for it to make mathematical sense to put that money into investments instead, you would have to earn a higher rate of return on your investments than the interest you’re paying on the credit card debt. So, following that approach, building the emergency fund and paying down the credit card debt would be high priorities for the Tax Refund.
But it’s also good to enjoy life, I would take a small portion of that and just enjoy it. Maybe go to a nice restaurant or something. But that’s just me. Regardless of what you do with the refund, the fact that you’re giving it some careful thought and wanting to do something worthwhile with the funds is great and means it’s all the more likely you will make the right choice for you and your situation. Good luck and let us know what you decided to do.
Btw, welcome to the site!
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That’s a very wise thing you did. Allocating your money on the things you really need. Sometimes people get too excited with the refund that they spend them without really thinking and allocating some to the things they really need. Anyways, great points you have there. Cheers!
Thanks Kyla and I agree with you. It’s important to spend money wisely, whether that is via a regular paycheck, a bonus, or a tax refund. Thanks for visiting.