Your Tax Refund
editor's note: we asked readers to share how they were going to use their tax refund. Here are some of the best ideas. Which one would work best for your family?
Use Tax Refund to Pay Down Mortgage
Let me start by thanking you for your useful column. My husband and I both work a full-time job and we each have side jobs that bring in extra cash. We have three children, one of which just finished her college education. Collectively, we bring home approximately $50,000.
I just want to remind people of the benefits of paying additional principal on your mortgage. We have a note for $63,000 and have 27 years to payoff. We are at 6.25% and our payment is $673 with insurance included. We recently added on even more additional principal which brings it up to $425 a month.
We used a Mortgage Amortization Calculator to find our best scenario. If we continue to apply the $425 and then in April or May when we get our tax refund, apply an additional $2000 to the principal for three consecutive years, we will pay off our 27-year loan in 7.25 years and save $54,000 in interest. I believe that it is all about living within your means and using the money that you do earn in your best interest. I'm very excited about the savings we are going to incur and I wish more people realized this.
Andrea in Missouri
Property Tax Help
Yes, we overpay our taxes. Yes, the government gets a "free loan" on our money, but my husband and I find it all too easy to spend money when it is in our hands.
We use our tax refund to pay our property taxes (which are not escrowed). We put it in an interest bearing account or six-month CD until due in November. And the leftovers go to home improvements and a nice dinner out!
Each year, my tax return pays my car insurance and DMV registration for the year. I don't miss the few extra dollars each weeks that is withheld for taxes and the larger lump sum pays two major expenses entirely. The little that is left I consider my free money to be used however I want!
Start a "Rainy Day" Fund
I've put my refunds to good use every year. The first year I filed by myself, my tax refund helped me pay my rent for two months, which was very good since I was unemployed at the time.
Since my now husband and I have been together, the tax refunds have gone towards property taxes for our home. This year, we ended up with enough for the summer taxes and will have a bit left over, which we'll use in our "rainy day" fund for unexpected emergencies.
A Total Lifestyle Makeover
We over-paid this year and got a lot back on taxes, so my husband went to work to fix it so we won't be getting back so much next year. We were surprised to see an extra $180 in our paycheck each month. With this extra money and our refund, we fixed up both of our used but paid for cars.
We also stopped subscriptions, looked through all of our bills to make sure we weren't paying for anything extra, took out our phone and just use our cell phone now (has family plan), and worked out a budget. In two months, we have paid off $9,000 of our $27,000 debt, which consisted of two loans, one is credit card debt and the other is a tractor payment. By this time next year, we plan to have it all paid off, work on our six-month emergency fund and mortgage/retirement/educational fund, and be totally debt free!
Samantha in San Antonio, Texas
Meeting Specific Financial Goals
Our tax refund went right into the bank at the highest rate possible in an account that is easily accessible. My husband and I have a goal to pay cash for our next home (a condo) by the end of the year. Our current home is paid for and we want to simplify our lives by downsizing and moving to a better area. That money will assist us in reaching that future goal.
Refund Benefits Family in Two Ways
When we receive our tax rebate back, I set aside $1,000 for vacation and $1,000 for school shopping. With five children, I always receive some money back because of the child credit tax.
I start school shopping at the end of June. They have spring jeans and shirts galore on the clearance racks. When August 1 rolls around, all the fall clothes come out and the price of clothing goes up.
For vacation, we do a lot of camping. My kids earn park tickets to Six-Flags Amusement parks through winter reading. Also, we go on vacation as soon as the kids get out of school. Many areas have cheaper hotel room rates in the beginning of June rather than July and August. I live near Wisconsin Dells, WI and this is the case for the month of June. Plus, we get our water park tickets through our Community Parks system, which saves us money as well.
Play Catch Up with an IRA
Last year, we used our refund toward IRA catch-up funds as we are both over 50. This year some will go toward fixing a basement bathroom that needs updating badly.
Julie in Ohio
Incentive to Start Saving
This is the absolute best way to save money! It's hard to save all year long. Seems like you have to dip into savings for an emergency of some kind. The tax refund sets up a nice savings balance all at once and is an incentive to me to get with it and add more.
Take the Next Step
- Get the biggest tax refund possible at Turbo Tax
Share your thoughts about this article with the editor: Click Here
Also in Money
- 6 ways to pay off credit card debt
- 10 sure-fire savings tips for 2014
- 10 sweet, often-overlooked tax breaks
- Make sure your children are a tax credit to you
- Fund an IRA early to grow a bigger account
- 4 ways credit unions help raise credit scores