The Tax Refund Debate

 

This picture of my flowers has nothing to do with taxes, I just had to share them with you because they are gorgeous (and I needed a picture for the post). Ben got them for me on Valentines with this note:

"It's really hard to be sneaky with you always in the room but it looks like I pulled it off.

- Love sneaky Ben."

He cracks me up. He ordered them while I was sleeping in on Saturday. ;)

Now on to the taxes! Because we are first time home buyers we get the $8000 homebuyer credit. Which means combined with our amount for having three kids and one income, all the other stuff, etc. we are getting a sizable refund. So naturally, we've had to figure out what to do with it all. 

BLOW IT ALL ON TOYS! WOOOHOOO! Heh. Yeah right. As much as I would like to get all the "toys" we've been wanting, we have to be responsible adults (damn).

We knew for sure we wanted to build up our savings. Ideally we will have at least 3 months expenses saved so that if the unforeseeable happens (such as a job loss or medical expenses) then we'll be able to float for a period of time. Be realistic for your situation. It usually takes longer than a month to find a new job, and not all medical companies will let you put your bill on a payment schedule. Save up a sizable amount.

Even with saving 3 months of expenses that still left us with quite a bit, and our list of things we would like to do. I'll share with you what I did so that maybe if you're facing the same dilemma (be it tax refund or other windfall) then you can use the same idea. All the following figures are fake.

I had originally just sat down with Ben and said, "OK, this is how much we're getting. What do you want to do with it?" But that... didn't go so well. Poor planning on my part. I forget that I need to spend my time thinking about it and making visual presentations to give him a better idea of what I'm thinking, rather than thinking out loud and not making sense. The next day I pulled out paper, a pencil and calculator as well as our current debts and wish lists and went to work. Then I threw it all into Excel to make it pretty and to be able to change numbers and have it auto-update the rest.

I set up possible scenarios for spending the money. In each scenario I listed certain things to do (like paying off the truck) and the total of them, then subtracted that total from our refund amount. After that I calculated how much one, two, and three months worth of savings would be based on what our monthly expenses would become after paying off certain debts. Once that was done, I then subtracted each amount of possible savings from the amount left from paying off debt. So my worksheet looked like this.

At the top you see the refund amount and monthly expenses based on what we would or wouldn't have to make payments on. Then for each scenario you see the item(s) to be payed off, the total of that, as well as the total of each month of savings. The bold numbers in the colored sections are what is left after all the math is done. This is money to either play with or additional money to put into savings. Our first choice is Scenario III with 3 months of savings. But that depends on what else comes up between now and then. We will probably use the leftover money to take a wedding anniversary vacation in May and hopefully build the shed and chicken coop with it. Or something like that.

Are you getting a refund this year? What do you plan to do with it?