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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…
Nice. Tax free income is always fun. Plus, usually in funds (bonds) that are a bit more stable when the markets get stormy.
We are putting ours towards student loans. So much fun! 🙂
That’s awesome! Those are almost gone now, right?
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!
WOOOOHOOOOO!!! That’s how I feel about that 🙂
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. 😉
Hah! Nice. We got 2 grand back, and basically went to our emergency fund savings.
I bought a new laptop which was a business requirement, and I saved the remaining $$. I love the idea of getting ahead by one month though–sure beats a frivolous purchase!
Are you a month ahead now? It’s really been a game-changer for us, finances are pretty low-stress compared to other things in life….like what to eat for dinner….or what shows are on Hulu tonight…
We put our fairly small tax return into our 2013 vacation fund. Woot!
W00t! Nice work.
Why is the average tax return [$3K] so high?
As a tax guy, I don’t like seeing the high return #’s, but most people like the feeling of getting a bunch of money back, so most likely, they withhold more than they need to. That’s just what I’ve seen from my experience.
I personally put 60% of my tax refund towards my student loan. I got 40% back which i put a portion to savings and I used some of it for other debt repayment as well as a birthday gift.
Sweet! Paying of debt is definitely a great idea. Are you a month ahead on your budget already?
We had to pay $275. 🙁 Good thing we didn’t get our hopes up. Guessing it’s because of my 2 part time jobs, even though AJ and I claim 0 allowances, we still have to pay. Thank God for accountants though – last year we paid $1400! That was painful. We were much better prepared this year.
It’s tough being a DINK! I know a few people that have that same issue. And yes, accountants help keep the stress down during this time of year 🙂
We are considering pursuing adoption, which is not cheap. The average cost is around 30k. Therefore, we are putting our tax refund in our “baby fund” which may be used for adoption and/or expenses for a biological child, should we have one.
That’s a great fund to have, and cool to hear, Hannah. Adoption is a wonderful thing! There is a good adoption tax credit that can help offset some of the expenses, but you will definitely need to $$$ up front.
You’ll be glad to hear that we’ll use our tax refund to pay the guy who prepared them =) It worked out pretty perfectly.
Haha! Nice! But it feels good to be done, doesn’t it?
You know that makes total sense to me Jacob and why wouldn’t someone want to be a month ahead. It’s all fine and dandy to go on a vacation but not having to worry about a months bills is what I’d be much happier with. The more people get used to setting this money aside the easier it will get and the more the savings will grow.I get a small refund and that will be re-invested.
Very true. This could be the start of someone learning to save even when they don’t feel like it 🙂
We bought a couch with our tax return. We needed on because the other broke. There was no point in saving the money because I would have just had to pull it right back out.
Word. Sounds like that money had a home before it even hit the account!
Our return is going to pay down our debt. I can’t wait until it’s gone and we have money in the bank for those rainy days.
I’m glad that I’m not the only one who does a happy dance when others are financially responsible with their extra cash.
Nice! Kick that debt like a bad habit!!
I have to pay:( I guess that’s better than making no money, and I know you shouldn’t get a refund if you plan correctly, but a little cash back is always nice. I’d use it for landscaping if I did get a refund.
Paying doesn’t ever feel good, but hey, it means you’re successful! Landscaping is going to be a BIG project for us this year. Hopefully not too expensive…. 🙂
Getting a month ahead of the budget is the best thing to do to avoid getting stressed with all the bills and late paychecks. This surely is a stress reliever.
This year my refund (that I wasn’t expecting and didn’t really want-was hoping I’d figured out a balance of no refund and no bill) will be going directly into savings.
We’re using it for investments – either mortgage payoff or Roth IRA’s. In the short-term, it will be going into a savings account while we make up our minds.
Great place to park it before making a decision. I would love to have invested mine, but parked it in savings as well as I see how our income plays out over this year.
Once I know I have my new job my entire return is going to pay off one more credit card!