After scrimping and saving during the Great Recession, I went experienced what some call "frugal fatigue." I decided to go on a spending binge that included splurging on fun things as well as stocking up on essentials. In the past few years, we haven't had a tax refund so I didn't have to think too carefully about what to do with the money. However, with a small tax refund on our way, I have to give some thought to how we should spend the money. Another option is to save the money.
Spending the money
If we spent our tax refund money, we could free up money in our monthly budget in case any unexpected expenses come our way. If we did decide to spend our tax refund, I'd like to spend it on a new sofa. However, my husband would like to use it to travel to Australia for an adventure trip. Even though my idea sounds more practical, I've read that people are happier when they spend money on experiences rather than things. If we decide to spend the money on a trip, I might need to go shopping for hiking boots to traverse the rugged ancient landforms I read about in a brochure.
Using the money on debt
Another option is to use our tax refund to pay down our debt. At this point we owe about $10,000 on a car and $103,000 on our home that we recently refinanced. However, using the money on our debt wouldn't really solve any of our current needs. We might pay off our car a month or two earlier, but we'll still be paying on our home for the next 15 years. If I was going to use the tax refund on my house, I'd make a commitment to do that every year so that we saw more of a benefit.
Saving the money for emergencies
Because we recently had to deplete our emergency savings account to pay for car repairs and a replacement car in the family, I am leaning toward saving the money. I know that our tax refund won't make up for all the money we spent, but it will get us back into the habit of having enough liquid savings. I also need to make sure I have a sub-category for spending binges that are a healthy way of recovering from periods of extreme austerity.
Consulting with my family
After talking with my family members, everyone agreed that it's best to save our tax refund for emergencies. We plan to cut back on going out to the movies in order to put more money aside for vacations and travel. I'm going to cut back on buying clothes so I can save up for new furniture.
One of the reasons we decided to put our tax refund in savings is because we don't want to begin to depend on the money every year. We never know whether we will receive a refund or how much it will be. Putting unexpected windfalls into our fund for unexpected emergencies made the most financial sense to us.
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More from this contributor:4 Ways I Won't Use My Emergency Fund
- Banking & Budgeting
- tax refund