What Should I do with my Tax Refund

As we all gather our W-2’s, 1099’s for the self- employed,   1098-E Student Loan interest statements, 1098 Mortgage Interest, and every other tax document that you try and remember for your accountant this year, we begin to think about the potential refund and all of the glorious things we can spend or save for this year.  After seeing a recent graphic from GoBankingRates.com I couldn’t help myself than to share what the average Joe American will be doing with their tax refund.  Get your tax estimators ready boys and girls it’s tax refund time.



27% Pay off Debt

According to CNN Money the average refund for 2015 was $2,893, which is an estimated provided by the IRS during the course of 2014 tax returns.  I plan to use this number throughout and call it an even $3,000 to make things simple and have a nice round number.  It’s with great excitement that I see that the highest percentage of Americans who receive a tax refund will be paying down credit cards, student loans, and all of the other debt instruments that cause the average Joe scrapes and bruises of interest payments this past year.

For the first time ever in my life I will not be part of this category.  I paid off all of my personal debt in 2015 and this one is checked off the list.  I cannot say enough good things about using this extra money to make your debt repayment change from a house cat to a lion, chasing down the prey known as debt.

Let’s think outside of the cubicle for a minute and a common theme throughout this article and ask “what can your tax refund do for you”?  Adding an extra $3,000 one-time payment  to a $200,000 mortgage at 3.75% can reduce the loan term by 9 months and save you over $6,069.83.  It’s another way of saying I want to double my money, food for thought home owners.

Here’s another one to think about.  You are given 2 options: 1) Receive $250 for the next 12 months or 2) Receive $3,000 at the end of 12 months.  Which one do you choose?  Even Steven Money wants the money upfront because he knows that he’s a smart guy and do great things along the way, like make extra payments every month to reduce the amount of interest he pays to big brother bank that has his loan.  Escape the cubicle faster and miss out on Richard’s 40th birthday party filled with cake and awkward stares?  The answer is YES, I can eat cake any time I want if I’m punching numbers into a computer for 8 hours.

25% Put in Savings

Oh you fantastic money saving American people, I had no idea I loved you like my own son with this glorious 25% category.  I am proud to say that 1 out of every 4 Americans are saving their tax return money.  Don’t let the .01% Interest rate of big banks scare you away, sure it feels like you are just stuffing money under your mattress, but the reality is things like life happens, cars break down, little Jimmy breaks his ankle, Momma D needs some new dentures, I don’t know what is going to happen next, but I do know that having a little savings on the side is a nice thing to have instead of the “broke monster”*.

This year is the first year I am able to put my tax refund into savings.  While 2015 was dedicated to paying back student loans and my parent’s loan, I dipped into Mrs. ESM savings (we keep our savings separate) and will be beefing up her/our rather paltry savings account with this year’s refund.  Although I am a tricky, tricky personal finance blogger and may have convinced the afore mentioned Mrs. ESM that she will be the proud owner of some Roth IRA index funds from Vanguard, I know she’s as excited as getting that $2 from Grandma that every child couldn’t wait for each year as your birthday present, even at 28 years old, NEVER gets old Grandma, thanks again, sorry THANKS AGAIN GRANDMA.

So we need some get out of the cubicle thought right here.  As I mentioned above we are receiving $3,000 and even if we received the best interest rate in the market according to Magnify Money** for a 12 month E-Savings account we would be earning 1.10% and $33.  I’m not saying if I at my bank’s ATM and a screen popped up that said Congratulations we like you more than any other customer and will be depositing $33 today, I wouldn’t leave with a smile on my face and repeat visits to see if it happened again, but let’s think bigger.  Do you think $3,000 could start a business and make more than $33?  I think Chris Guillebeau would respond with a loud YES!  His book in fact is titled The $100 startup:  Reinvent the Way You Make a Living, Do What You Love, and Create a New Future.  I think it’s a great way to make more than $33, it’s betting on yourself and I like your odds my friend, especially if you are reading personal finance blogs for fun.

One more that I can relate to is taking your tax refund and starting a blog.  By far this has been the best use of my money over the last 2 years.  Writing on the blog has increased my accountability, gave me the chance to share my thoughts and fears about money to people that will listen and rarely judge, and given me the opportunity to meet new people that I think are the smartest people about money in America.  If you want to start a blog, give Bluehost a try, it’s what I use today and I don’t hate them, so that’s not so bad.  They will also pay me if you use that link, well I think they will, don’t worry I’ll keep my fingers crossed.

9% Put towards a vacation

I 60% recommend 100% of the time, putting money towards a vacation.  And why yes that is a cheap rip-off of an Anchorman quote used to make spending money on vacation funny.    I personally think that using savings for a vacation is a very smart thing to do, even if you are in debt.  I don’t mean fancy vacations to Europe sitting in first class eating out at Michelin restaurants, but I do think visiting family who lives in Florida so the kids can swim around in the pool is not going to kill your debt repayment plan.

Here is the wording of the survey that makes me get a little worried with the 9% who chose this category of,   “Put towards a vacation”.  The wording makes me believe that while the average American is getting their $3,000 tax refund, they are putting this towards a vacation, not for a vacation.  What’s the difference?  They are taking the $3,000 and buying plane tickets to see Mickey Mouse down in Florida for the family, but then putting the housing, food, and souvenirs on the credit card.  See the difference now?

What this behavior leads to is credit card debt and moving your fancy vacation into the “stupid” part of the 9% because this will just land you in the 27% that are paying back debt in next year’s Go Banking Rates survey because of your “spend a ton of money on vacation plan”.  You know YOLO, I deserve it, and some other sayings that I’m proud to say I don’t think I know of.

I certainly don’t know if I’m a frugal weirdo, but I certainly have my frugal tendencies.  Yes, I break down the cost of riding the train to get to O’Hare with friends vs the Uber breakdown and yes I will be asking them if they have signed up for Uber so we both can get a free ride to the airport, feel free to sign up as well.  I may also while on my daily walk with my dog check down every alley to see what the potential is of the garbage that was recently discarded, but frugal weirdo……..well maybe.


This is all Mrs. ESM, I found the chairs, she did the rest. Take an old pillow case and a heavy duty staple gun my Dad gave me and fancy kitchen island chairs……Free

5% Make a major purchase

Now here I’m going to make an assumption that the tax refund of $3,000 is being added to a much larger sum of money that you have been saving for this major purchase.  I know that the average American wouldn’t just get the monies and impulse buy a new Toyota Camry because the tax refund deal they are having this year is A-M-A-Z-ING, right?  Also I’m sure we wouldn’t get a tax refund and then go out and buy a home using this as the down payment?  Because you would have a larger down payment to go along with it and some emergency house funds to make sure the air conditioner doesn’t give out or one of the water pipes breaks in the house.  No, we are prepared for that, this is just in addition to our big amount of savings we already have.

Remember we are looking at this tax refund as a way to jump away from the grey cubicle walls that are starting you in the face from 9-5 every day.   Let’s do something that will get us there faster.  Let’s use a family member as an example, let’s call him Michael.  Michael almost fresh out of college began his first real job; they gave him a salary and everything.  Now Michael couldn’t have been more excited, he has big plans of paying off all of that student loan debt that he carries along with him.  Way to go Michael, we are so proud of you.  Then it happens the vehicle that he has had since high school isn’t as dependable as it used to be.  A trip back to see Mom and I he realizes the car just might not make it home, most of us have all probably been there.  Our car isn’t acting right, not dependable, etc. and now you have money, a job, and even a credit score.

All those days of refilling the oil at every gas station are over.  You probably know the rest of the story because you yourself may have been Michael, I know I was.  This is what happens next “big plans of paying off all of that student loan debt” So you head to the local dealership where a friend referred you and just a little while later you are driving away in a brand new Jeep Grand Cherokee, which costs you $34,000 and $500/month, but wait you used that $3,000 tax refund to not pay $37,000.  This is the point where I go to slap on you the back and tell you how great your car looks, but instead since I’m Even Steven Money, I hit you upside the head and tell you to bike to work.  For the love of God, you live less than 2 miles away.

I wish that I would go on Facebook after tax season and see someone named Michael or otherwise and show me a picture of a $3,000 1998 Honda Civic that they bought for cash after selling their brand new Jeep Grand Cherokee.

While I may not have created the 10% Rule, I certainly agree and live by it.

4% Splurge on a Purchase

This is the category that worries me the most.  Every day we are challenged by advertisements on our google searches, subscription emails about a shopping sale, mobile ads to entice us to buy more, and television commercials to get the latest and greatest “thing”.  When I say we are challenged, I really mean it.  Today, we can expect to see over 5,000 advertisement and brand exposures per day according to this NY Times article.  There is a really good chance you have been battling all year not to spend money on your credit card for that new TV you wanted, Air Jordan’s that sold out in stores, or new dress in the window you walk by every day after your train ride to the city.  Over 5,000 times you said I can wait, but now that you have an extra $3,000 in your hands from the government***, that money will be going towards a new “thing”.

We are here today to take out the drill and unscrew the wall in front of you a la Office Space.  Let’s eliminate the 4% out of all of us, which I worry is a much higher number than presented here.  Is that new TV a need over paying off a credit card balance?  Do you think you deserve a pair of Gucci loafers more than your student loan needs an extra payment?  What are you doing to make this number 0%?

Do you think I’m crazy to think this number should be 0%?  If you are itching to spend a new crisp dollar bill that comes into your hand, then the cubicle nation will be in your future for a long time.  If “stuff” is your splurge then I suggest getting ready for the long haul of working extra hours for the next 30 years.   If you love the “VIP” line at the Coach store, which I can’t even possibly put into words how much this angers me, then I suggest you plan on earning globs of money and making a few sacrifices along the way and just make sure to remind yourself when you are working on a Saturday or putting in 55 hours that it’s going towards a Coach purse.  Just make sure you value your purchase today as much as you will in 25 years.


If you have not seen the movie Office Space, please stop reading this article and spend the next 90 minutes taking it all in, then come directly back here and read the rest.

30% I do not receive a tax refund

This category was saved for last as I plan to end on a high note.  No, I didn’t purchase a medical marijuana dispensary as my new business idea, but I certainly have good intentions with average American surveyed here.

When doing your taxes each year you essentially have 2 options:

Option 1:  Pay in more money to the government and wait till tax season for a refund of this money

Option 2:  Pay in less money to the government and when tax season comes around you will not receive a refund

In an ideal tax plan you would pay in the exact amount of money to the government so the total expected would be $0.  It certainly is difficult to get this to the dollar, but to get it plus or minus $100 I think is a real possibility, just by using a tax estimator found with a simple google search and inputting your tax data from the previous year.  Did I lose you?  Hope not because here I come with the Good Stuff!

The best mathematical approach to taxes is not receiving a tax refund or owe the government money. 

This solution gives you the highest possible return on your money.  Why’s that?  Think about it like a race with your cubicle mate sitting across from you, now if they are the 25 year old recent college graduate who eats salad for lunch, they will run circles around you head to head.  But what if they wore a backpack full of bricks for the first 30 yards of the 40 yard race and then for the last 10 yards they took off the backpack and sprinted the last 10 yards without the backpack?  You could win then right?  If the answer is not yes please start eating salad and going for walks during lunch instead of hitting up the vending machine and checking if anyone has leftover Valentine’s Day candy.

You see the comparison right?  If someone gives you money upfront you have a longer time period to invest and save than your 25 year old recent college graduate.  In essence you get to start the race with a head start, no bricks in your backpack.  Of course if sweet Gladys who brings you freshly baked cookies every Monday is sitting across the cubicle divide, then you get to run the race with bricks weighing you down and if I’m a betting man, sweet little old Gladys will hop right over you as you collapse to the ground in exhaustion.

Just to give you an idea on what kind of difference this makes, if we take $250 invested at 8% for 30 years our total value will have increased to $375,074 versus adding $3,000 at the end of every year would net you $367,037 or a difference of $8,000, assuming I put the numbers in the calculator correctly.  Of course as that $250 monthly turns into $350 and larger, the bigger the difference in our total value of money will become.

As I wrap up this long, long breakdown and shake your hand for hanging on this long.  I want to share one last little cubicle moment for those of us reading today that struggle with saving, paying off credit card debt, or saving for that big vacation with the family.  Just because it’s the best move mathematically to receive your tax refund upfront little by little over the year, it’s also in our human nature to spend and make a “human error” along the way.  So don’t feel bad or discouraged about the numbers rather feel great about paying down that loan or saving $3,000 throughout the year.

Whatever category you find yourself in come April 15th, make sure you are doing what’s best for you in the long term.  I promise that if you take the time to think about what you plan to do with your money, then you are doing better than the average Joe American.  Let’s take a little time out of day to plan the smartest way to use our money and be an Ameri-CAN Saver, not an Ameri-CAN’T.

If you are looking for more detailed information on the survey check out the article Elyssa Kirkham wrote at GoBankingRates.

Funny Asterisks

*The broke monster is not fictional, he does live under your bed and you should be scared of him, your brother Kevin is not making this up, he was attacked last week and his credit card statement can prove it.

**I’m not an affiliate with Magnify Money, but I “Know a Guy” who is, so if you plan to open  a savings account any time soon, use this link instead, I’m sure they would appreciate it.  I listen to the podcast and I even do it by choice.

***Let’s be clear this is not extra money and this is not from the government, it’s simply the money you earned and let the government hold on to for the last 12 months.

Are you looking for the best way to track keep track of your money, including your tax refund ? Then sign up today for the most outstanding financial tool to view your financial accounts in one place.  Even Steven Money Approved!

Are you looking for the best way to track keep track of your money, including your tax refund ? Then sign up today for the most outstanding financial tool to view your financial accounts in one place.  Even Steven Money Approved!

24 Responses to “What Should I do with my Tax Refund

  • Our days of spluring with a tax refund are over. Now days, it all goes into the investement account.

    We did use some years of tax refund to use the money to upgrade the house to be ready for our children. At times like that, some extra cash is very welcome.

    • EvenStevenMoney
      8 months ago

      It can certainly be a progression on what we end up doing with a tax refund. It certainly would be hard to argue against doing exactly what you did and adding it to your investment account.

  • I seriously wish I was at least breaking even on my taxes. I am anticipating owing over 10k to the tax man this season.

    I have an appt with my CPA this week to see what the damage is going to be. Its not going to be pretty!
    Alexander @ Cash Flow Diaries recently posted…February 2016 Net Worth UpdateMy Profile

    • EvenStevenMoney
      8 months ago

      I think that’s the ultimate goal right, to be Even Steven;) We had one unexpected payment to the tax man a couple years ago, but that was definitely not the norm. Best of luck and make sure to ask all the right questions, especially for next year to avoid paying in a larger amount.

  • We actually did a little better this year and only owed about $1800, which is much better than last year and we made more money. I fully admit though that after 4 out of the last 5 years having to pay the government money (an average of about $3000) I would love a small tax return. 2016 should be better. I just need to have my wife save more for retirement. What will you do with your refund?
    Jason recently posted…The Best $7000 I Ever SpentMy Profile

    • EvenStevenMoney
      7 months ago

      Sorry for the extremely late response……So you say you would like get money instead of give money to the IRS:) shocking. Mine is all going to replenish the savings account after paying down the last of my debt.

  • Ha-ha wow the tone of this was so funny.

    I’ll be honest I’ve been conditioned to receiving a refund. This year it’s the smallest ever and we are both kind of peeved about it. We don’t see it as being more efficient we see it as getting gipped.

    I still need to give it a once over and then submit it. I’m hoping I missed something and that it’s going to be bigger then it currently is.
    The Roamer recently posted…Why a 30 day challenge?My Profile

    • EvenStevenMoney
      7 months ago

      Sorry for the extremely late response……Yeah getting a smaller tax return than expected is a pain (cough my bonus cough). You should run it by a CPA friend to see if you missed anything, just to give it a once over, we go with a friend/CPA and do the once over on our end, but it’s saved money each time just forgetting stuff we forget to tell him about.

  • Great detail on tax refunds! Tax refunds are one of the more interesting phenomenon’s in personal finance. When people get them they get excited and then typically spend it in ways that is unusual from how they spend their regular paycheck.

    What makes that interesting is the fact that a tax refund is the EXACT thing as your paycheck…except not paid on time. So not only should you not be happy with a tax refund (opposite of what actually happens), you should use it in the exact same way you use your normal paycheck (opposite of what actually happens).

    One of many example of our collectively odd behavior with money

    • EvenStevenMoney
      7 months ago

      Sorry for the extremely late response……

      What makes that interesting is the fact that a tax refund is the EXACT thing as your paycheck…except not paid on time.

      Nail on head, it’s something that is counter intuitive at first glance, but you have to ask yourself, do I want money in my paycheck every week or in a year? I want it now! HaHa

  • Chadnudj
    8 months ago

    I love getting a refund every year, even if it means I loaned the government money interest free for awhile. It’s forced savings that I cannot spend/waste, I never “miss it” during the year, it imposes some degree of restraint on lifestyle inflation (I always do smarter things with a refund than I would with little bits of extra money throughout the year), and I don’t have to worry about coming up with money at tax time.

    The tax refund, combined with the two months when I get 3 paychecks and getting reimbursed from my dependent care FSA for $5k means I basically get quarterly sizeable cash infusions, which is nice (and that’s ignoring things like bonuses, etc.)

    • EvenStevenMoney
      7 months ago

      Sorry for the extremely late response……

      That’s a great way to look at things in terms of keeping lifestyle inflation in check. I do agree that if that money would just be spent during the year and instead causes you to save, it’s best to forgo the monthly increase in your paycheck, however if you instead are taking that money and immediately saving/investing that portion, i’ll take that strategically.

  • I’m glad to hear that more people will be using their tax refunds wisely this year. That’s a great financial win!

  • What makes that fascinating is the way that an assessment discount is the EXACT thing as your paycheck… aside from not paid on time. So in addition to the fact that you should not be content with a duty discount (inverse of what really happens), you ought to utilize it in precisely the same you utilize your typical paycheck (inverse of what really happens).

    • EvenStevenMoney
      7 months ago

      Sorry for the extremely late response……

      Exactly, it comes down to get paid now or get paid later. I’d be curious to see a study on the demographics of wealth and those who understand the concept as it relates to taxes.

  • We are building a house, so our refund is going to pay the “facilities tax” our local county charges on all new construction at $1 per square foot. There won’t be any left over for fun or investments. 🙁 We had a baby in 2015, so we did get a little extra money back that we wouldn’t have otherwise. 🙂
    Josh recently posted…5 Ways Craigslist Saved Us $4,000 On Our Home Construction!My Profile

    • EvenStevenMoney
      7 months ago

      Sorry for the extremely late response……

      Josh you sound excited about this new $1 per square foot tax, I know I would be;) Congrats on your baby…….and a little extra money for diapers!

  • It’s interesting that 70% of filers get a refund. Just think how they could improve their lives all year long if they simply adjusted their W-4 withholding! Maybe it’d even help boost the economy a little earlier!

    Interesting stats!

    John recently posted…Are you gambling or investing?My Profile

    • EvenStevenMoney
      7 months ago

      Sorry for the extremely late response……

      I am one of the 70%, but I will admit a lot of this is based on rental property/expenses throughout the year, which can be unexpected deductions, but I think we could do a better job. I’m thinking about running a half way/mid-year check point as we have increased our tax defered contributions this year.

  • It’s nice to see that a majority of people are putting their money either towards savings or paying down debt. Nothing wrong with putting it towards vacation either if it’s going to stop you from going further into debt!

    I personally plan on putting my tax refund towards my debt repayment, though my refund is smaller this year. Less student loan interest paid in 2015 means less of a refund!
    Debt Hater recently posted…Luxury ApartmentsMy Profile

    • EvenStevenMoney
      7 months ago

      Sorry for the extremely late response……

      Less student loan interest, love to hear that! I have the same problem, which is a good thing of course.

  • I’m frustrated because one of my W2 employers messed up my W2 and still have not gotten me the corrected one. It is May. When I receive my tax refund, it is going straight into savings, specifically my EF.
    ZJ Thorne recently posted…Checking in on a Delicious Venture – Perks of Being a Silent PartnerMy Profile

    • EvenStevenMoney
      5 months ago

      Any time you can put your tax return to savings I feel like that is a win.

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