How We Used Our 2012 Tax Refund

We filed our taxes a couple months ago, and even though getting a refund means we temporarily lent money to the government, it’s always a fun little bonus. This year we were pleasantly surprised to receive $1,723! This is less than we got back last year, which we were a little confused about, considering we had a baby last year. But, my income went down (I work part-time now), and we also paid less interest on our house loan after paying off our second mortgage and refinancing.

Naturally, immediately after we found out we were getting a nice refund, we brainstormed ideas on how to use it.

Possible Ways to Spend $1,723

  • Makeover and organize our master closet with the IKEA Pax system (a total dream!).
  • Put it in our retirement fund for a little boost.

We ended up doing a mix of #1 and #3. We'd love a new closet, but it's not a necessity (a total splurge and luxury, rather), and I'm quite certain I can live without that buyer's remorse.

We put half in our retirement accounts (it's amazing how that boost of cash can affect the projected final amount!). I feel really good about this, especially since that's the baby step we're on.

Then, we saved the rest to use this upcoming year on expected/planned expenses: summer vacation, weddings, Christmas cards, handmade Christmas stockings, my birthday trip and a trip to the Iowa State Fair. We did the same sort of thing last year, too, since we weren't sure how a baby would affect our monthly budget. But, it's sort of like the chicken and the egg. We can save the money now so we have more monthly income to spend how we want (since we don't have to save it), or we can spend it how we want (closet) and use our monthly income how we've already planned (savings). Bah!

Eric has since changed his federal withholdings so we can have some of this money spread out across the year. We just have to make smart decisions with it each month! Do you think you'd be smarter with a lump sum or extra monthly income?

P.S. Did you know the average tax refund is $2,800? I enjoyed this article on how Americans spend their tax refunds.