Once again, I’ll be getting a tax refund. It’s going to be about $2000. Not too bad, but not as good as it was last year when I received over $5000. At least it’s better than owing taxes. Still, the question remains, what do I do with that money? $2000 is a nice chunk of change, but there’s only so much of it to go around.
I’m thinking about doing either an all or nothing approach or dividing the money up among various options.
All Or Nothing Approach
I could use all of the money towards paying down my mortgage, save for a downpayment, or use all of the money towards investing in my dividend portfolio. That doesn’t seem like a bad option either way.
It’s unlikely (but possible) that I will take the entire amount and put it towards my mortgage. That would help take years off my mortgage. But, the satisfaction of being mortgage free is so far away that I don’t feel I would be satisfied doing that. But, given my recent goal to pay off my mortgage early, I am considering this approach.
Alternatively, I could put the money aside towards saving for a down-payment on a house. This is a very enticing option as it will help me to invest in another house. Still, home buying for me is months away and I likely won’t buy anything before August of this year. In addition, I am expecting to get a bonus in the summer which will contribute greatly to the down payment of another house. So, I’m just not sure.
Still, another option is to invest the entire amount into my dividend portfolio. Perhaps I could add another stock, which I haven’t been able to do for a long time. I just don’t know.
Jack Of All Trades
I have so many financial goals, and thoughts about what to do with my tax refund, that it makes my head hurt. For example, I still owe money on my phone, which I pay for every month. I could pay my phone off and do something with the rest.
Also, I technically have a starter emergency fund, but I could use a part of the tax refund to build that up a little bit. I know having an emergency fund is important, but I hate the idea of having cash just lying around. I also have access to my credit cards if I’m tight for cash.
I could even go shopping with some of that money. Today I spent over $100 on clothes. I needed extra jeans (I only had one). I also bought shirts, socks, etc. Perhaps I could use the tax refund to go shopping for clothes and other items I might need around the house. I don’t want to waste it all on that though, but the point is I wouldn’t be taking an all or nothing approach as indicated above.
I have a car payment. I could put some of that money on my car so I can try to pay that down a little bit earlier as well. So many goals and obligations, so little money to go around.
Conclusion
So, what would you do with a $2000 tax refund? What do you think I should do? I’ve already put in the data in Turbo Tax and know that’s what I’ll be getting. I am sleeping on the information and will be double-checking a couple of things early next week. So, I will likely receive the refund sooner rather than later when I file.
Let me know your thoughts by commenting below.
Cam I offer another suggestion? You could be having too much withdrawn from your paycheck. Have you considered adjusting your withholdings to increase your take home amount and decrease your trex refund? You will be able to fund your goals throughout the year rather than wait for a big refund.
Fair point Richard. But I’m a wasteful spender and chances are, a bigger paycheck means more money to waste per month. I got one like getting a big tax refund. Call it forced savings if you will. I’m less likely to waste a larger amount than I am a smaller amount.
Finally, I’m not entirely sure that the refund comes entirely from my paycheck. The fact that I have other deductions and the real estate that I have is operating at a loss when depreciation, etc is factored in helps as well. But, that was a fair point though.
I will save it as an emergency fund because I probably will lose job soon. It is a sad story.
DSFI recently posted…Dividend Income | January 2019 | $0.07
Sorry to hear that DSFI. I hope it works out for you.
I would put it in the down payment.
That’s certainly one of my considerations Gwynne.
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I got a couple spreadsheets you can use that after you put in all your income and expenses, when you make the adjustments on your w-4 you’ll see how much extra you got which then you’ll be able to plan a method of deployment with those available funds.
My first thought was that’s $2K that could’ve been in your portfolio throughout the year, which is more compounding, more dividends, etc. Government isn’t going to give you interest on that income tax. Make it work for you.
If you are interested in the sheets, check out my post – https://10bucksaday.net/2019/02/15/a-rain-drop-creates-an-ocean/
It’s aimed at those with debt, but it really can work for anyone
Appreciate it Steve. I actually use my own spreadsheet but it’s geared towards a different purpose. Still I’ll check out yours though.
Also, some of my refund comes not just from the fact that I over pay taxes throughout the year but from the credits and deductions I receive for certain things like student loan interest payments etc.
Finally, I really like getting a big tax refund. Call it forced savings if you will. There’s no guarantee that if I received that money throughout the year I would be investing the difference. That’s because the amounts are smaller and I tend to waste smaller amounts of money that larger amounts. Not good but I’m working on fixing that mentality.
Such a relevant and helpful article. Thank you so much for sharing.
Thanks Sharlene.
While it doesn’t address your immediate question, I would put it into savings and not rush into a decision. With that said, I would probably be inclined to pay off the phone and/or put towards the car payment to eliminate / reduce ongoing debt payments. That then puts more money into your pocket on a monthly basis, that can then be put towards the other goals.
Without knowing the specific numbers, maybe pay off the phone and then put 75% of the remainder against the car and 25% for spending (suggesting that as I suspect the itch is there and this would be better than spending on the credit card if you’re not paying off the debt).
Interesting points DD. Well, I just got my tax refund and so either my next post, or the one after that will be about how I spent it! It’s already gone btw.
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Hey, thanks! Who qualifies for a tax refund?
Hopefully I get one this year, but we will see.
Thank you for sharing this article.
Thanks for stopping by.
I found it interesting when you said that you have received a tax refund of $2,000 for this year and $5,000 for last year. I’m also looking forward to having that amount but I’m not sure how I should file for my own tax return. To avoid owning taxes, I think it would be a good idea to hire a professional tax preparer.
Always a good idea to at least consult a tax consultant.