This post is from contributor, Stacey Lane. Originally published Feb. 2014.
It is that time of the year. Tax season is here. It is the one time of year I smile a little bigger about earning less money and having extra deductions.
For the past several years my family has received a tax refund. Oh, how the conversations start with the best way to use the money. We dream big, and then we get really practical. Then we start with big dreams again with ideas of vacations, electronics, and home improvements.
For me it becomes a large, growing internal conflict. I want to use the money wisely, count every penny. Then I lie in bed at night and convince myself I work hard all year and I deserve a break.
Do you have the same struggle?
To bring balance to my inner conflict, I wrote a Tax Refund Formula on the best way for my family to divide up the money.
Formula for Tax Refund:
- 30% for Debt or Medical bills
- 20% for Savings or the Emergency Fund
- 15% for Car Replacement
- 10% for Tithing or Charity
- 10% for Homeschool
- 10% for Investment
- 5% for Fun
For example, if we were to receive a tax refund of $3,000, I would divide up the money in the following way:
- I would use $900 to pay off debt. My current debt happens to be medical bills.
- I would save $600 in my Emergency Fund. This fund has really taken a hit this year, and I will be thankful to have a little cushion in the budget.
- When both of your vehicles have 150,000 miles or more, replacements are on the horizon. We want to be prepared for when one of them finally decides to no longer work with easy fixes. I would add $450 to the car fund.
- What a blessing to be able to give; $300 goes to tithe or charity. Sometimes we divide this in half between our church and favorite non-profit.
- The older my kids get, the more money I need in the homeschool fund, and $300 can be a good start. High school brings about a lot of extra needs to prepare for graduation and college.
- When I talk about putting $300 toward investments, I do not mean stocks and bonds. Often throughout the year, deals will come along that will save me money in the bigger picture. I like to be able to take advantage of those situations, so having a little extra money put aside helps with strains on the monthly budget.
- The best part–$150 for having fun. This is where I am giving myself permission to forget about the bills and budgets.
What about you? Do you have a plan for how you’ll spend a tax refund?
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We usually get a decent refund check from the IRS, and different years we spend it different ways. We’ve used our checks to pay off debt, buy “toys” (my husband and I both have spring birthdays), take vacations (we took the kids to Florida a few years ago), or fill in the blanks in our checking account. This year, our tax refund bought us a “new to us” vehicle and will allow us to afford to rent a house in our new town while waiting for our house to sell.