Five Smart Suggestions for Spending Your IRS Tax Refund

I was later than usual this year filing our tax return. Normally I like to have it done by mid-February, thereby receiving an IRS tax refund sometime in early March. This year, though, I didn’t get it done until just a few days ago. So now I am having the fun of dreaming about what to do with the money I expect to get back… *gazes off to the horizon, eyes glazing over*

Are you wondering what to do with your IRS tax refund this year? Here are several suggestions for the smartest ways to use it.…sounds of gulls chirping and waves breaking, warm sun on closed eyelids, salty scents, sand squishy between toes…

Wait. Nope!! Wake up, Ann; this is NOT what’s gonna happen this year. Ann? Ann…..


Ok, so then, what are some smart things to do with an IRS tax refund? What are the BEST ways to spend that money, if you are trying to be responsible and get yourself to a better financial place? I have several suggestions:

1) PAY OFF DEBT. This is always first. Credit card debt, for sure, would be at the top of the list, because it is usually made up of miscellaneous purchases or dinners out or other low-value consumables. Why pay interest on stuff you don’t even remember buying? But even the more “acceptable” debt, like auto loans or home equity lines of credit, should be paid off ASAP. Interest is just money down the drain.

I checked on  Their posted auto loan interest rate as of 3/25/15 for a new car, paid off over 60 months, is 4.31 percent.  At that rate, for a $30,000 car (which is pretty much what they go for these days), paying the minimum payment on the loan every month, at the end of five years you would have paid $3402.15 in interest alone. (Use their auto loan calculator to verify my figures or input your own.  Click on “show amortization schedule” to see the total interest.) That’s over $600 per year.  That’s a chunk of change.  Pay off the loan and stop giving the bank your money.

2) If you haven’t already started living on last month’s income, use the refund to help you get there. Set it aside towards next month’s bills, even if it won’t pay them all.  Getting to the point of having next month all paid for before it even starts would be a great feeling.

3) Buy something that will help you save money in the future. An example would be a freezer – by having more freezer space you can stock up on meat and other perishables when the price is right. This will save you grocery money, which can add up to quite a bit over the long haul. Another example would be a bike, to ride to work instead of using a car. Or a pellet stove or space heater, if it will help heat your home and lower your utility bills. Or supplies for a vegetable garden. You get the idea.

4) Set it aside for Christmas. I know that Christmas always sneaks up on me, to the point where one year we had to go to the dollar store for our gifts. If I set money aside now, I could shop sales all the way between now and the holiday and probably be DONE shopping by Black Friday, instead of just getting started.  What a concept!

5) Buy something that you’ve already been needing, that costs a little more money, that you haven’t been able to save up for yet. ONLY if the amount of the refund will cover the item in full — such as furniture, home improvement, dental work, a used car, etc. It’s always nice to have a little windfall that can help you pay IN CASH for a larger purchase.

Of these, we are probably going to do a combination of #1, #2, and #5 this year.  I wish we could use all of our IRS tax refund to payoff debt; but we are also striving to have enough set aside to be a month ahead on bills, which I think will help our long-term financial stability. And finally, we recently realized that the eldest’s car is ready for its final resting place, so we need to find something else for her to drive. (It was a freebie from a relative and unfortunately never very reliable, so in a way it’s a blessing…) I’m just glad we’ll be able to pay cash for the vehicle we choose for her.

I’ve read other articles about how to use your tax refund that suggest different ideas, but these make the most sense to me.  What do you think?

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