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As tax time comes to a close, many Americans are waiting in anticipation of their tax refunds to hit their bank account (or come in the mail). The average tax return in 2012 was nearly$3000! And though it is tempting to take that money and buy a 108″ TV for your 1-bedroom apartment, let me pitch to you another idea that will have FAR more benefit that having life-sized football players running on your wall: USE YOUR TAX RETURN MONEY TO GET A MONTH AHEAD!
Why Would I Do That?
A few weeks ago, I had readers email me the most awesome news! They had decided to get a month ahead on their budget. I did the happy dance (of course) and am excited that another couple can experience the magic that is being a month ahead.
They are part of a series on the blog Consumerism Commentary that I am helping with called “Naked With Cash” (catchy title, huh?). The husband had just changed jobs, and was now getting a bi-weekly paycheck, which we can all agree is pretty lame! They were starting to feel a bit overwhelmed, trying to figure out when paychecks would be coming in and timing that with when bills were due. As I always do, I mentioned getting on a sweet budget to help iron out the expenses, but that they would feel much more at peace if they could get a month ahead on their budget.
They are going to use their tax return and a 3-paycheck month (you bi-weekly folk know what I'm talkin' 'bout, YEA BUDDY!) to have one full month of income saved up before April begins! Then they can transfer their money from their savings account to their checking account at the start of the month, giving them all the money they need to pay every bill. Heck, they won't even care when they get paid anymore, BECAUSE IT'S NEXT MONTH'S MONEY! I'm telling you, this is a cool feeling, and THE ONLY WAY TO BUDGET, in my opinion 🙂
What Are You Doing With Your Tax Return?
Dave Ramsey put together his “7 Baby Steps” (more on that at another time), and he says that you should save up and emergency fund of $1,000 right away, then tackle your debt. That's fine and all, but for us bi-weekly-ers , trying to pay off a ton of debt with a piddley emergency fund can get a bit stressful, not to mention trying to figure out when things are due. I would say this: Save $1,000 EF, THEN GET A MONTH AHEAD, then tackle your debt. I find that achieving your goals seems to happen A LOT better when you are not stressed out week to week.
So give it a shot. Heck, worse comes to worst, you have an extra month of savings built up and you can completely ignore everything you've read here. But I guarantee going from bi-weekly income to being a month ahead with COMPLETELY change how you handle your finances, and WILL help you achieve your financial goals.
So what are you doing with your tax return?
I haven’t done my taxes yet (just got the last K1 form I needed!), but if I get a refund (most likely will from the feds, but will also most likely owe my state) the money will just go straight to Vanguard for me to invest. Haven’t decided which fund yet, but I am leaning towards a muni-bond fund for a little more tax free income…
We are putting ours towards student loans. So much fun! 🙂
Yeah! And not only that, those bi-weekly checks sometimes were delayed by a few days if the boss forgot to process payroll in time. WHAT THE HECK.
So I’d have to move money from savings to pay bills until the delayed check cleared. What a dang pain.
But no more! Being a month ahead, it won’t matter if there’s a delay now. I am stoked!
We must’ve been on the same wavelength, because I wrote a very similar post today. We got a whopping $40 back from the Feds, so I think I’ll be taking Mrs. Frugal Rules out for dinner. 😉
I bought a new laptop which was a business requirement, and I saved the remaining $$. I love the idea of getting ahead by one month though–sure beats a frivolous purchase!
Nice. Tax free income is always fun. Plus, usually in funds (bonds) that are a bit more stable when the markets get stormy.
That’s awesome! Those are almost gone now, right?
WOOOOHOOOOO!!! That’s how I feel about that 🙂
Hah! Nice. We got 2 grand back, and basically went to our emergency fund savings.
Are you a month ahead now? It’s really been a game-changer for us, finances are pretty low-stress compared to other things in life….like what to eat for dinner….or what shows are on Hulu tonight…
We put our fairly small tax return into our 2013 vacation fund. Woot!
Why is the average tax return [$3K] so high?
I personally put 60% of my tax refund towards my student loan. I got 40% back which i put a portion to savings and I used some of it for other debt repayment as well as a birthday gift.
W00t! Nice work.
As a tax guy, I don’t like seeing the high return #’s, but most people like the feeling of getting a bunch of money back, so most likely, they withhold more than they need to. That’s just what I’ve seen from my experience.