Tax returns can be a great boon to your household income, but only if you use them right. Find out how to budget this year’s tax return wisely…

I used to dread tax season, mostly because I always seemed to owe the government money. Of course, this was back when I was single, living at home, and working part-time. Nowadays, I am married with five kids and paying for the house we live in. Tax season has taken a turn for the positive.

But as exciting as getting that check from the IRS can be, it can also cause a lot of stress. A sudden influx of cash after pinching pennies for months can be overwhelming. Suddenly, you have options and decisions to make.

Should I pay off my credit card? Should I use it for fun money? Do I pay off my student loan or my car first?

How should you budget your tax return?

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Where should you allocate the funds to make the most of them while still enjoying having a little extra in your bank account?

Recently, I was at Starbucks and the barista told me how a regular customer came in and brought her entire office. The customer bought everyone a drink and got the most expensive thing she could order for herself. She explained that she had just gotten her tax return and was treating everyone.

Now, I don’t know that I would blow a portion (or all) of my return on Starbucks, but I can’t fault the lady’s generosity. But before you head to your nearest coffee shop with a hundred of your closest friends, let’s go over the best ways to budget your tax return.

Categories to consider when budgeting your tax return

These are categories that you should consider paying a portion of your refund toward, to ensure that you make the most of it. They include:

• Personal Debts
• Emergency Fund
• Savings
• Bills
• Giving
• Household Needs
• Fun Money

Not all of these categories need to be included in your own budget, or even given equal attention. But for many of us, a tax return is a chance to catch up, get ahead, and give back.

How to set up your budget

You can either wait until the money has arrived, or when you’ve done your taxes and figured out the amount you’ll be getting back. You can even start coming up with ideas throughout the year of where that money could best serve you.

Remember that a budget isn’t limiting, it’s freeing. You are telling your money where to go—you’re in control.

Depending on how much you receive and what your financial situation is, some of these categories may not be necessary for you (i.e. if you already have an emergency fund set up), but consider each of them and pray over the best way to satisfy your monetary needs and bless others.

Personal Debts

The first thing you should do when you get your tax return is budget for the repayment of personal debt. Proverbs 22:7 says, “The rich rules over the poor, and the borrower is the slave of the lender.”

Take this opportunity to clear the slate, or at least make a sizable dent in the debt.

Emergency Fund

Dave Ramsey advocates having $1000 on hand and ready for any emergency that might come up. I love the idea he shared in Total Money Makeover to put the money in a picture frame—it’s there if you need it, but not so easy to get to that it’s spent on non-emergencies.

Put aside a set amount for emergencies that you would normally look to your credit card to pay when your bank account is low. This money can be saved for emergency car repairs, a broken water heater, or the surgical co-pay if your son jumps, falls, and breaks his wrist (that was us).

Repay it as soon as possible when you do use it, so it’s ready for the next emergency that life throws at you.

Savings

The current advice is to set aside six months’ of expenses in your savings account in the case of unexpected unemployment. Unfortunately, this can be more than most tax returns, so I suggest starting with one month. It may only give you 30 days’ worth of peace of mind, but it’s something.

Set aside one month’s worth of expenses and try to add to this throughout the year. If you can afford to do more, then go for it. Just make sure you don’t neglect any of the other important categories.

Bills

If you’ve fallen behind on any bills, budgeting some of your tax return to them in order to get current would be a great idea. This gives you a clean slate, without any late fees or double payments that will put your behind again.

You can even think about paying a month ahead to give you a pillow for future months where your income may lag. This is especially helpful if you work at a job where your income is inconsistent.

Giving

Just as you would tithe your income throughout the year, consider giving 10% (or whatever amount you feel called to) to others. Think about things that you’ve wanted to support, but maybe been unable to because of financial hardships.

The options are endless, but this list could include your church, local charities and shelters, sponsoring a child through World Vision, or non-profit organizations that you believe in.

Household Needs

Budgeting for household needs is a great way to spend some of your tax return. If there are repairs that you’ve been putting off or tools that you need, allocate some of your refund toward those things. Consider it an investment,

These things might include fixing or replacing a faulty refrigerator, putting an irrigation system in, or getting an automatic garage door. This also might include tools like a car jack, a kitchen appliance, or a new clothes dryer.

Fun Money

You work hard for your money, and there’s no reason you can’t enjoy it. Once you’ve taken care of the important and necessary stuff, make sure there is some money left over for fun.

Maybe this will mean a massage at the spa. Maybe it’s tickets for the whole family to see a baseball game. Or maybe it’s the start to a vacation fund.

Whatever you decide, spend it on something you love that you often deny yourself for the greater good of the family. Or, on a lot of Starbucks for the office. To each their own.

 

I hope these categories help you budget your tax return wisely and make the most of the money you’ve received. With a little planning, you can avoid the stress of too many options and allocate your money where it’s needed most.

Me, I’m off to get a massage (and maybe a few new books!).

 

Do tax returns stress you out? Have you ever squandered the money or do you budget it to specific categories? I’d love to hear what your family does in the comments below!

 

Interested in more on budgeting and frugal living? Check out these popular posts:

How to Budget with an Inconsistent Income

The Best Homemade Natural Beauty Remedies on a Budget

Finding the Money: When Your Heart is Big, But Your Budget is Small

 

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