Tax Refund To Spend Or Not To Spend

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According to the IRS, the average tax refund in 2011 was about $3,000. For some, this is a good thing – like the $10 you sometimes find in the pocket of a coat or jacket pocket. For others, it’s the realization that they’re finally getting their hard-earned money back after having “lent it” to the government at zero interest. Remember, your tax refund isn't some sort of magical windfall – it is money that was over-withheld from your paycheck during the past year.

Your tax refund isn't gift or money you just found outside on the side of the road — it’s YOUR money, and you worked hard for it. Now that you’ve got it back, do something smart with it.



1. Start an emergency fund. If you don’t have an emergency fund, use your refund to create one for a rainy day. Should you ever lose your job or have your furnace go in the dead of winter, you’ll be glad you did.

2. Pay down your debt. Pay down your credit cards, student loans, or any other debt. Those high interest rates are a killer so start with the higher interest cards/loans first.

3. Refinance your mortgage. Interest rates are at or near all-time lows. Use your tax refund toward closing costs and snag a low rate because it can result in substantial savings.

4. Fund your IRA. If you’re one of the many Americans who have too little saved towards their retirement , consider funding your Roth or traditional IRA.

5. Adjust your withholding. If you don’t have the discipline to save, getting a tax refund can be a nice thing. On the other hand, reducing the amount you have withheld from your paycheck is like getting a raise. To make the change, file an updated W-4 form with your employer; by changing the number of allowances you claim, you can adjust the amount you have taken out of your paycheck. Ideally, you’ll want your withholding to match your tax liability.

If you pay an accountant to do your taxes, they will most likely give you advice with your W-4. If you do your own taxes, many of the tax software programs offer a W-4 feature as part of the software.

Just a few simple things we can all do instead of spending our refund on frivolous items.Realistically most of us already have that refund spent before it even is deposited. I know we did :)
branie posted Feb 13, 2012
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14 Comments
branie
We have seriously been considering trying to refinance our mortgage. Rates are about 1.5 points lower. Closing costs and dealing with the banks and paperwork is making me cringe :(
branie (rep: 43.2k) posted Feb 13, 2012
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VirginiaPeanuts
Great post!!
VirginiaPeanuts (rep: 11.2k) posted Feb 13, 2012
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gangstabarbie
I usually spend it on a nice vacation at the caribbean. After working do hard, the least I can do is treat myself to a nice trip ;)
gangstabarbie (rep: 9.67k) posted Feb 13, 2012
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toast
I'll be sticking mine into my Roth!
toast (rep: 5.54k) posted Feb 13, 2012
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krmills1
Invest it in a high paying dividend stock like AGNC and watch your money make money!
krmills1 (rep: 14.2k) posted Feb 13, 2012
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chuckydealpl
Spend it on deals from DP.
chuckydealpl (rep: 40.3k) posted Feb 13, 2012
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Taylor9124
It's probably not the best way to think of it, but I see it as extra money. Although it is money I already spent, I like to reward myself with something nice, as long as I'm not in any financial trouble at the time.
Taylor9124 (rep: 88) posted Feb 13, 2012
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encorez
I break even on fed. so I haven't even done my taxes yet..
encorez (rep: 9.96k) posted Feb 13, 2012
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helloamy1977
Its sad that so many people dont realize that they could be getting that money throughout the year and putting it in a savings instead of having the govt hold on to it. I used to claim 6 dependents when I only had 1 so that I didnt have to wait to get the money owed to me back at the end of the year.
helloamy1977 (rep: 2.53k) posted Feb 13, 2012
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toast
@helloamy1977: Did you end up owing money instead when tax time rolled around since you claimed 6? I've always thought of it as: if you don't get taxed more now, then you'll end up paying later, and vice-versa. Either way the money's gonna get to the government, so I'm wondering how true that is since I've never really looked into it.
toast (rep: 5.54k) posted Feb 13, 2012
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helloamy1977
It was a while ago I was making close to minimum wage and I figured out how many dependents I should claim to pretty much break even and not have so much taken from my check. I didn't owe anything in taxes and got back around $50. It depends on how much you make. If you're making a good amount of money and you don't have dependents you would want to claim 0 so you don't have to pay a lot when taxes are do. But some people with low paying jobs get back like $4000 from claiming $0 because they don't understand that they could have that money throughout the year instead of giving it to the govt in every paycheck.
helloamy1977 (rep: 2.53k) posted Feb 14, 2012
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helloamy1977
brainie explained it very well...sounds like suzy orman
helloamy1977 (rep: 2.53k) posted Feb 14, 2012
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akaricke
Great tips thanks.
akaricke (rep: 159k) posted Feb 14, 2012
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branie
Thanks Everyone! @helloamy1977 I wish I was Suze Orman, she is one smart lady :) Sometimes her overall thoughts in my opinion are geared towards people who make ALOT of money or maybe she is not as realistic as she should be about the current state of most people financial well being as the average person in this economy is struggling to get by each month just paying their monthly bills, never mind having 8 months of emergency cash saved. JMO
branie (rep: 43.2k) posted Feb 14, 2012
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