The Tax Question: Save, Spend, or Pay Off Debt?

by Kristina on March 23, 2011 · 4 comments

If you are getting a tax refund, how will you use it? This year I am receiving a $3512 tax refund.  I know that it is better to receive a tax refund rather than owe money to the government, however this year’s refund was very small compared to my tax refunds in previous years. Considering the average tax refund this year is just over $3000, I guess that according to my annual personal income taxes I am an average tax payer.  This year the deadline to file our personal income taxes is April 18.

This is the lowest tax refund that I have received in several years.  I know that I should be happy that I don’t owe money to the government, but in all honesty (and a little bit of greed) I miss having an above average tax refund.

Last year I received $8600 in a tax refund. I used a small portion to pay off accumulated debt; I used some of it to prepay my rent for 3 months, and the rest I spend on materialistic goods.  The year before that I received an $11,000 tax refund which I used to buy a new television and take a trip. In 2007 I received a tax refund of approximately $5900 which I used to refurnish our bedroom.  I have never saved any money from any of my tax refunds over the years.  I consider it as extra money, and therefore I don’t feel the need to save it.

According to CNN this year people will not be spending their tax refund, and they will not be using their tax refund to pay off debt; this year people will be saving their tax refund.  How will you use your tax refund this year? Will you spend it, save it, or use it to pay off debt?

This year I will use $500 from my tax refund to pay off some accumulated debt, and the other $3000 I will keep in cash savings.  I may use it to take a trip in the fall, or I may use it to refurnish/redecorate our living room, but for the time being I am just going to save it.

Once again, I am an average tax refund recipient because I am not spending my tax refund on materialistic goods.  Just like the majority of tax payers, I will be saving the majority of my tax refund.  This year I am within the 43% of people who confirm they will be saving their tax refund.

I have learned firsthand over the last few years that we should not take money for granted.  This may be why I have decided to save my tax refund this year, as opposed to spending it.  I know how quickly a dark financial cloud can move in, and I know how quickly a rainy day can come.  My rainy day account is mostly invested in short term fixed income investments, this $3000 cash will be a nice addition into the mix.

Photo by Jeff Sandquist

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