How should we spend our tax refund this year? It’s a question I find myself asking every spring as I finish keying in our slips and receipts and prepare to netfile.
It’s nerdy, but I really enjoy doing our taxes. I started doing ours three years ago and while there was a small learning curve, I’m glad I took the time to work through it. I still have to look things up sometimes, but for the most part, I feel pretty confident filing our taxes on my own.
But let’s be honest: my favourite part of doing my taxes is spending the refund.
Here’s how we spent our 2019 refund.
Our 2019 tax refund
Our total 2019 tax refund came in at about $1,870. This is a little less than last year, but still a decent chunk of change. We filed using SimpleTax and had our refund in hand about 10 days later.
Before I get into how we decided to spend our tax refund, let me say this: I don’t care about the whole “interest-free loan to the government” thing. Especially because, in our case, the things that impact our tax refund the most don’t relate to how much comes off our pay in taxes. When I compile our return in SimpleTax, the two categories that boost our tax refund are charitable contributions and student loan interest.
Even if that wasn’t the case, I would still be fine with it. I like receiving a little chunk of change in the spring. It doesn’t matter to me that it is technically money I should have had all along.
How did we spend our tax refund last year?
Last year, we made a very intentional decision to not spend our tax refund to pay down debt. I wrote about it here but the gist of why we decided not to use any of it for debt is simple: we didn’t feel like it.
Does that make me a bad personal finance blogger? Probably. But I don’t really care.
Instead of paying down debt, we used that refund for a combination of travel, sinking funds, and yeah — personal spending. I wrote about how I used my portion of the return here.
And looking back? I don’t have a single regret. It was the right call at that time.
But this year, we wanted to do something a little different.
How we spent our 2019 tax refund
Ultimately, we decided to spend our tax refund on two things this year.
The future house account
For 2020, I set three financial goals. One of those goals was to take a meaningful step in the direction of homeownership.
We’re not in a rush to buy a house. Renting has been kind to us during the debt-free journey and while there are times where I think it would be nice to have our own space, I think we are in a good place right now in terms of housing.
But owning a home is something we both want one day.
The project I associated with this goal was to save $8K. Depending on when and how we decide to approach homeownership, this could either serve as the start of a downpayment or make up some costs associated with closing.
Our tax refund was what allowed us to make progress on this goal in Q1. Of the $1870, we put $1,200 away in a high-interest savings account to work toward this goal. Once we finish repaying our emergency fund this month, we’ll be focused on adding to this account.
Personal spending
Much like last year, the second thing we did with our tax refund is pretty simple: we allocated it as personal spending money.
After spending cash to the future house fund, we took $600 and split it down the middle. Jeff got $300 and I got $300 to spend on whatever we want.
In my case, I opted to send that cash over to my high-interest savings account with EQ for now. That’s what I have been doing with a lot of my personal spending allowance lately (thanks, shopping ban!). I don’t have a big plan for this money right now, so I figure this is the best place to put it.
What about the rest of it?
After spending in those two categories, we had about $70 left.
In the end, we decided to us that money to beef up a couple sinking funds as well as our weekly grocery budget.
Why we didn’t spend our tax refund on debt this year
For the second year in a row, we decided not to spend our tax refund on paying back our debt.
And for the second year in a row, the answer as to why is the same: we didn’t feel like it.
Here’s the thing: we have made a LOT of progress paying back our debt. We started with credit cards, a car loan, a credit line and the student loan about two years ago, a total of about $65K.
Since then, we have paid off our credit cards (and fallen into a rhythm of using them responsibility), our car loan and our credit line. In one year, we brought our student loan balance from $48.5K to sub-$30K.
And even though we have paused our payments to the student loan for now, we are still poised to pay back at least $10K this year.
So I don’t feel bad about not using our tax refund on debt this year.
Final Thoughts
Deciding to spend our tax refund on something other than debt was the right decision for us this year.
This little windfall made it possible for us to make some progress on one of our financial goals, while also providing a bit of extra spending money, something I think is important on the debt-free journey.
Is this what we will do every year? Who knows. But for this year, I feel good about the decisions we made.
Did you get a tax refund this year? How did you use it?
Reading this made me sit down and do a budget spreadsheet because I had a hard time figuring out what my financial goals are, and now I have some workable beginner steps down.
My tax return went to paying off debt incurred in a move to another city for a job, and now my priorities are to pay off my credit cards, save up 1 month of income in a high interest savings account, and save up enough for a third of what it would cost to get a car.
Glad it was helpful! As with most things in life, getting started is often the hardest part so that’s awesome that you have some beginner steps! And based on what you shared below, it sounds like you have some good ones. If you’re looking to open a HISA that will let you store your money in an out of sight, out of mind place, let me know, eh? One of the banks I use typically does a referral program in the spring and if I am recalling correctly, it was a $25 for the referrer and referee kind of deal!
Your money, your decision. Personally I pay quarterly taxes so I don’t ever get a refund, it just reduces the amount owed on the first quarter of the next year. I never minded refunds back when I had a regular job, but we didn’t spend them, we invested them. We never had any debt to pay down except the house mortgage and we paid it off way early. I tend to agree that the cost of a zero interest loan to Uncle Sam is a small thing compared to how getting a refund feels! I’m glad someone finally said it out loud.
I totally get where people are coming from when they talk about the interest-free loan thing and I think if our situation was a little different, I might have another view of it…but for the amount we get back and the timing, I’ll take the refund! I anticipate once we’re finished paying back debt we’ll be more focused on investing. I’m looking forward to that!
This is a truly inspired article, Tara. I think you are doing an awesome job paying down your debt and, sometimes, you just need to reward yourself. After all, we are in this for the long haul and it is our one and only life. If we don’t do some of things that inspire us, make us happy and remind us why we are making the hard choices, then what’s the point? Investing is important and you also have to invest in yourself. Looking forward to reading more about your journey. Thanks for sharing!
Thanks for the very kind words, Debbie! Much appreciated. I really do try to do the best I can to balance doing the things we need to do (like pay off debt) with (responsibly) doing things we want to do. I like to think we succeed at this more often than we fail, which is about all you can ask for really. Thanks for stopping by 🙂
I think you made the right decision with your tax refund despite not doing what PF experts typically would recommend. But you need to do what makes sense for your. Afterall, personal finance is personal. 🙂
We plan to invest all of our tax refund.
That’s the way I try to look at it most of the time — as much as it would be great if there was a one-size-fits-all approach, there just…isn’t. At least, not that I’ve found. All we can do is do our best!
I’m looking forward to the day when we’ve got less debt and more to invest. Definitely a great way to put the refund to work!
Personally, I love that you let yourself use your tax refund in a different way than the “responsible PF bloggers” would tell you to. And you put the majority of it into savings, which is super responsible anyway! I used my tax refund to buy a cordless vacuum I’ve had my eye on and then the rest of it went to my credit card to pay it down. 🙂
haha well, you know me: I like to do things my own way 🙂 Sounds like you put yours to good use, too — as a fellow cat owner, I can attest to how important a good vacuum is! Don’t know about you, but at our place, it’s hair city all the time.