Help Me Buy Something with My Tax Refund

I just received my yearly merit increase: a whopping 3% to stay right in line with inflation.  Don’t get me wrong, I’m very appreciative of the extra money, but in the grand scheme of things, how much will this improve my life?  Will I be able to buy more, spend more, save more?

In the same week, I also got my tax refund from the government: $1,500.  This is actually less than 3% of my salary, but for some reason it feels like a significant chunk of change!  Now let’s figure out what to do with all this money.

Save It

The most mundane option would be to save all this money.  But I think it’s important to set realistic goals.  I know it would be easy to spend this on a big impulse purchase but I think a compromise is the best option.  Save half your refund and spend the rest on something you actually need.  Personally, I get a strange satisfaction out of saving money, so I’ll probably save the entire amount, but that might not be feasible for everyone. 

If you’ve been following this blog, you know I’ve provided you with several money saving tactics.  Don’t go and blow all your hard work on one frivolous purchase.  This situation reminds me of people who are trying to lose weight.  They work out so hard during the week, eat healthy and then load up on their cheat day and take a huge step back.  Don’t be that person!

Boost Your Retirement Accounts

I’ve already increased my 401k contribution from 15 to 18%.  I always recommend increasing your retirement savings by whatever percent raise you get.  A 3% difference in after-tax income will hardly be noticed on a single paycheck.  But this is probably the easiest way to steadily increase your retirement contribution.  If you’re fortunate enough to get a raise or yearly merit increases, raise your 401k contribution amount ASAP.

A lot of people think they would be happier making just 5 or 10% more.  But the truth is, as your income grows, so does your lifestyle.  Most people prefer the illusion of wealth; they would rather look wealthy than be wealthy.  Why else would so many Americans be inundated with such high debt?  Set your goals so that your lifestyle will lag your income.  When your return on your assets is greater than your contributions you will have achieved ‘Financial Happiness.’

Readers, what are you going to do with your refund checks?  Anyone else get a raise this year?

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Hi, I'm Harry, the owner and head writer for Your PF Pro. I started this site back in 2011 in order to create a place where young professionals could come and get all of their financial questions answered. On the site, you'll find articles on everything from asset allocation for retirement to saving money at Chipotle! So enjoy..

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  1. says

    We use the rule of thirds for windfalls. One third gets saved. One third pays down the mortgage. One third goes to whatever we want. Last I year I got a new bicycle and the spouse didn’t get anything. Years prior, she’s gone a vacation with friends and I sit at home. Some years we divide it up and there are no questions asked on what we spend it on.

    With taxes, we usually owe a huge chunk of change.

  2. says

    Interesting, I like that rule. I have a big savings goal I’m working to right now, so currently, I save everything I can. I’ll be writing a future post about why I always under withhold on taxes though, stay tuned :)

  3. Steven says

    I got around $1100 back this year… I used about $800 to pay off the last of one my credit cards, then used the other ~$300 towards my half of our vacation (my first vacation in probably 6 years!). :)

    • says

      Awesome, paying off credit card debt should always be a priority when you have extra cash on hand. It’s like getting a guaranteed return on your money.

      6 years is way too long to go without a vacation! I love taking vacation, but it’s always so depressing going back to work :)

      • says

        That’s why you have to make work your vacation ;)

        Usually when I get windfall money I use Ramit’s strategy and save 50%. The other 50% I spend on stuff I like or need.

        The method’s useful because you save some without thinking; it’s just habit.

        Trust me, you’ll get the same amount of joy spending $750 as you would spending $1500. Might as well save half and enjoy it in the future.

        • says

          Work as a vacation? haha, I don’t think so. Although my workplace is pretty laid back compared to most.

          It’s key to have some type of rule for windfall money, whether you save 1/3, 1/2, either way, you have to get into the habit of saving. Thanks for commenting Alex.

  4. Matt says

    I like the idea of beefing up the retirement account. However, since I fund that regularly, I will put it towards other investments. I’ll buy one stock that I’ve had my eye on (not sure which one yet – probably ConocoPhillips or Philip Morris).

    I’ll use $500 for my stock of choice, and the rest I’ll divy up between my “vacation”, “down payment”, and savings funds. Perhaps I’ll dip in to the “savings” allocation for some concert tickets (gotta have SOME fun with it).

  5. says

    If you’re already doing well in your retirement accounts, after-tax investing is a good option. Personally, I don’t do much after-tax investing though, I prefer to purchase real estate with after-tax dollars. Not too many investments where you can put 20% of your money in, and still get 100% of the return :)

  6. says

    I’m kinda in the same boat. I like to call it “a great problem to have.” Let me explain.

    This year was the first year I was able to open my business in my home. Because of that and because I had to put my four-year-old in day care, I got over $5,000 back from the government. That’s an extra 416.67 I was giving the government every month. But here’s the predicament… I have no debt but my house and I’m already paying extra on that automatically. My business makes enough to pay for all the needed equipment and I already live within my paychecks so I don’t need anything. I have the perfect job…I only work 7 hours a week…and I don’t need a vacation.

    It would seem that staring at the money and watching it grow in some investment is my only option. Or am I missing some other option?

  7. says

    Roberto, that’s an awesome problem to have! I actually don’t mind giving the government my money by under withholding because it makes you save. If you don’t have the money in your account, you absolutely can’t spend it.

    Personally, I’m not a big fan of after-tax investing because of the taxes! Have you looked into real estate investing? It’s probably my favorite investment because you only need to put up 20-30% of your own money, yet you get all of the returns and pay no taxes on capital gains.

  8. says

    I got a semi-small tax refund (< $1,000) and that all went to my down payment savings fund.

    I also will see a pretty nice raise starting with next paycheck, which I am uber excited for! I actually lowered my 401(k) contribution since I was already maxing it out and leaving it at the same % would max it out earlier in the year. My investing goal is 20% of my gross, so I split my paycheck to put some money into taxable so I'm investing 20% of my gross income each month.

    I'm also trying a new experiment so that I don't see the raise of direct depositing the amount of my monthly spending plan to my checking account, the 20% top-up to my Vanguard account, and the rest into my down payment savings account. So my checking account will have no idea that the raise even happened! But my down payment account sure will!

    • says

      Leigh, that’s awesome. It sounds like saving money gets you just as excited as it gets me! haha I’m very close to maxing out 401k so I should be there within the next year or two and then I’ll definitely set something up similar to what you have described. If you send that money straight to a separate account, you can never spend it. :)


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