If you’re like 80% of Americans, chances are you’re receiving a tax return this year. Congratulations!
Last year, my husband and I had to pay more than $8K in taxes and let me tell you, writing that check to the IRS hurts!
For this tax year, we changed our deductions; we also bought a house and had a baby, which resulted in a decent-sized tax return this year.
While it may be true that receiving a refund essentially means giving the government an interest-free loan with your money, the fact of the matter is, it feels a heck of a lot better to get money back than to write a check.
And frankly, it seems like most people use their tax return as sort of a forced savings account.
There are several different ways to use your tax return, and we contemplated many. Here are some of the ideas we came up with, and ultimately, which one we chose.
1. Pay Off Debt
Most American households have credit card debt, with the average being about $15K.
For this very reason, one of the most popular things to do with your tax return is to pay off debt. Let your tax return bring you some peace of mind and motivate you to make more progress on your debt.
2. Make a Big Ticket Purchase
After a mortgage, a car is usually the next biggest purchase Americans need. And unlike a house, you usually need to buy a car more frequently.
Coming up with a down payment for a car isn’t always easy, especially if you don’t have a car to sell or trade in, or if you’re still making payments on the vehicle you currently have.
Using your tax return to help with the car down payment can really help lower your overall payments throughout the life of the loan. The bigger the down payment, the faster you’ll pay it off!
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3. Save It
Almost everyone says they will save a portion of their tax return, but the reality is far bleaker.
While most Americans have good intentions of padding their savings account with their tax return, the reality is that everyday expenses and unforeseen emergencies pop up and eat into what we plan to save.
Set aside a percentage of your return and immediately send it to the savings account you’re currently funding.
If you’re constantly living paycheck to paycheck and working your butt off, you may feel that your tax return is your chance to splurge on yourself and your family. Who doesn’t deserve a break every now and then?
Whether it’s finally taking that family vacation you’ve been talking about, or splurging on some clothing and shoes, most people really want to use their tax return to treat themselves for the past year’s hard work.
5. A Combination of Everything!
Ultimately, we decided to do a little bit of everything! We took some money to complete a savings goal we had for a new car for my husband (his car was 15 years old!), we used some of the tax return to pay for part of our vacation to Cabo San Lucas, we padded our savings accounts, and we paid off a credit card in full.
What do you usually do with your tax refund? What are your plans for it this year?