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Home » Frugal Living

A Smart Investment For Your Tax Refund

Submitted by on March 8, 2012 – 7:24 pm 18 Comments
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While everyone can take advantage of a free efile at tax time, I realize that not everybody gets money back after filing taxes. And I do understand that getting money back is often a sign that you paid too much in, and that it would have been wiser to adjust your withholdings so that you kept that money instead of loaning it to the government to earn interest off of. I get that. However, if you are like us, you just might qualify for tax credits that carry with them a nice bonus refund. That’s always cool.

But, what to do with that extra money?

Well, obviously, if you’re in debt you NEED to pay that off, asap. Please do not blow you tax refund buying more junk. PAY OFF YOUR LOANS! Breaking the shackles of debt bondage must become the top priority in your financial life.

If your mortgage is your only debt, then paying it off should be at the top of your to-do. And putting a good chunk of your tax refund toward paying down your mortgage is actually, in my humble opinion, a very wise financial investment to make.

By paying extra on your loan, not only are you reducing the amount of years it will take to pay it off, you’re also saving that much more in interest. You can type your loan info into an amortization schedule calculator, and find out how much interest you will be saving by making an extra payment. Of course, your loan amount, the amount you want to put down, and the interest rate of the loan are all variables here.

In our situation, if we put an extra $2000 down on our mortgage (tax refund money), it will actually save us about $4000 in the long run. That’s like double our money back! If you ask me, that’s a pretty good investment, with low risk (no risk if you stay in the home) and great return!!

At a time when the market is unstable, it’s hard to know how to invest wisely. But for us… this is the answer. Pay off the mortgage!!

If you’re expecting (or already have) a nice little check from Uncle Sam, and are wondering what to do with it, please consider how much money you could save over the long run by putting some of that money toward your home loan. A few years down the road, you’ll be so glad you were looking ahead!!

 Of course, there are SO many good ways to spend your tax refund. How do you plan on using your money to benefit your financial future?

 

 

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18 Comments »

  • Lindy says:

    Yes we did finish paying of Johns truck with ours but we also bought more hard wood flooring and are in the process of doing that ourselves.. we already did half of the house ourselves, why not do the other half and save labor money. We are using ours to make repairs to the house.. Much needed repairs.. Its going to look so good and I, for one, will ne less stressed about how nasty the carpet it.. lol Good for you guys paying down the mortgage!!

  • Meg says:

    I will admit, as much as I’d love to pay down our mortgage, we decided to go on a trip to Las Vegas/Grand Canyon for our 5 year wedding anniversary in May. We are trying to start a family, and we thought that this would be a nice trip for the two of us as a last hoorah.

    We have been working Dave Ramsey’s plan since January 2010, and we have paid off $26,000 in debt on June 15, 2011. Like you, we have a bank repo home that needed alot of work. In the beginning, we financed alot of things. We decided in 2010 to stop doing that. So, the house will not be complete for another 2-3 years, but we are OK with that!

    Since June, we have saved our Emergency Fund, have a Home Improvement Fund of $5,000/year, a new (to us) car fund to invest in for when ours need repairs or to be replaced. The next thing on the list for us is 10% of our income into a Roth IRA and THEN we can work on paying off the house.

    We currently have only 13 1/2 years left on our mortgage (we refinanced October 2010 at 3.879% for 15 years) and a balance of less than $53,000 as of this month. If we were to put just $250/month extra, the house would be paid off in 2019, or just 9 years after taking out the mortgage! Our ultimate goal is to have the mortgage paid off in the next 5 years though. This would change drastically if we are blessed with children. It’s all in His hands. I can plan and plan and plan until I am red in the face, but whatever He chooses for us will be best. Even if that means we cant pay the mortgage off early!

  • Ann says:

    Paying off the dentist and some dr. bills. Got a used decent vacuum sweeper we needed over the weekend. anything else left will pay bills. Nothing exciting, but glad to do it.

  • Anonymous says:

    It took us 6 years 10 months to get out of debt (not just get out of debt, but rather claw and dig our way out!) God must have made it painful so we would remember and not be tempted to jump into debt again. We had everything but the mortgage paid off (student loans, orthodontics for two kids, credit cards, etc.) then to finish a job well done, we put every penny we had paid toward those bills and socked that on top of the regular mortgage payment. We were in a hurry hurry to get that last bill done! So we were paying DOUBLE house payments month after month after month.

    We were not swimming in money. There were great sacrifices to be made. My clothes came from the hospice thrift store. My furniture found curbside during bulky trash pickup and I stripped it down and recovered it (actually recovered/restored 17 pieces). One of my favorite finds was a waterbath canner at a garage sale for $1.50! God always provided what we needed and a few wants as well, but there was no eating out, no vacations. It can be done and we had to encourage ourselves that this was just for a season of our life.

    Everything has been paid off for about 8 years and our quality of life has improved. The marriage is stronger because there is no fighting over money. We live on a budget and I know what I’ll have for groceries. I get new clothes now but I stay out of the mall and still shop the used thrift store. We still grow our garden and can. Lifestyle changes had to occur in order to be successful and these have just stuck with us.

    So for those of you paying off your debt, BRAVO! You’ll be glad you did.
    And now more than ever, I urge you to hurry hurry!

  • kim says:

    It is so nice to see people actually using their brains to do the most with their money. I watch others squander and waste and then do without neccesities, it does not make sense to me.

  • Kristi says:

    I agree! We don’t have any debt, aside from our home. We chose to use our $2100 tax return and $900 of our savings to get THAT much closer to paying off our home. We now owe $1015 on our home/property (which is only 2.5 more monthly payments), so as you can imagine, we are so excited! In 3 months, we will not be in debt to ANYONE, which will be so very freeing!

  • Dh pays extra on our mortgage almost every month and we will be debt-free in around 4 years. Sadly, we don’t get a refund….not even with 6 children still at home!

  • Emily says:

    We are debt-free other than our mortgage.

    We decided to apply our tax refund to our mortgage and we’ve also budgeted an extra amount each month for mortage repayment. We’ll have our mortgage paid off 16 years earlier if we keep this up. That’s OK, but I’d prefer to get our mortgage paid off even faster. I need to figure out how to do that.

  • Amanda says:

    Edit to my previous comment: I should have said the we want 6 months of expenses saved. Right now we are blessed to have an income that exceeds our expenses, but that won’t last for long since I’m quitting my job to stay home with our baby due in July, and my husband is in the process of finding a job as he finishes graduate school.

  • Amanda says:

    We put our refund into a long term emergency savings account. We have a goal of having 6 months of income saved, and we are almost there. We should reach the goal this summer.

    That said, after we make our goal, the next goal is to pay down our mortgage. It’s our only debt, and we hate it. I’m with you that paying down a mortgage is a great place to invest money.

  • Tami Lewis says:

    we bought land -10 acres!- with it!!
    (by the way- i used to be A Godly Homemaker)

  • Not sure what we’ll get back this year but whatever amount we get will go towards our house we are trying to build without a mortgage. I’m glad to hear there are other people who feel the same as we do about debt.

  • SarDee says:

    We only had a small return and we used it to finish paying for the birth of our seventh child! He was an emergency c-section and spent time in the NICU, which costs $$$…$! Very nice to have those doctor and hospital debts gone.

  • Lanna says:

    Another option is to keep the cash on hand for living expenses – that’s what we ended up doing when we were unemployed or had *just* found a job and didn’t want the rug pulled out from under us again. Having a nice little savings cushion has definitely been nice for my peace of mind over the years.

    As for a refund… We don’t get one this year. Well, much of one. The small federal refund will almost take care of the state income tax we’re getting hit with (apparently we hit the next bracket up, and since our employer’s in a different state the with-holdings were goofy). So we’re a smidge in the hole, all the more reason for our savings. I have to say though, the year or two we had much, much, much less income, were unemployed and such, we got killer refunds/credits/whathaveyou. Pretty nuts, and really, we’re not living anywhere close to high on the hog unless you count the 11yo minivan I drive.

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