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Tax Return Season: What to Do with Extra Cash
If you want to live more simply, what you do with extra money is important. In my own journey, I’m working toward working less and paying down debt… simultaneously.
Soon, I’ll be receiving a $7200 tax return check. I file zero exemptions, have a little extra withheld, and as a single parent, file head-of-household status. It works well for receiving a big chunk every February.
How I’ll Spend My Tax Return?
Most years, I use the bulk of my tax return to do home repairs and to prepay for summer vacation. This year is a little different. There are no major updates needed for our house and my daughter wants to focus on her karate lessons this summer. So I’m changing things up a little. Here’s my plan:
- Pay of all credit-card debt: Last year, I made the choice to stop working overtime. I also shifted some debt so that I would have more monthly cashflow. The goal was to work less while eliminating more debt. In general, it’s working, but I spent about $2000 for snow tires and a winter vacation to California. The first thing I’ll do with my tax return is pay off all credit card debt… 100%.
- Update electronics: I’m a single parent. My daughter, Annie, will be going into high school in the fall. She’s going to need a computer and a better phone for her high-school years. I’m going to buy myself a new laptop and give her my 2-year-old MacBook Air. We’ll also update phones, including unlimited data. It’s a bit of a necessary evil. I’d rather my kid not overuse screens, but experience has shown me that she’ll find a way to get electronics even if I don’t provide them. I’d rather provide and monitor.
- Buy a bicycle: My current bicycle is about 35 years old and very heavy. Three seasons of the year I like to commute to work by bicycle when I can. As Annie moves into high school, cycling should be even more possible for me. So it’s time to upgrade the bike. Annie got a new bike a couple of years ago. It’s my turn. It won’t be extravagant, but it will be a good commuter bike in the $800 range.
- Some necessities: Tax return time is always a time for me to pay auto insurance and get the dog to the vet. I also use extra money to stock up a little on dog food and household paper products. Yes, that means toilet paper.
- Save: I hope to have about $1000 leftover to add to my $5000 emergency savings.
Thinking Toward the Future
So you might think I’m being a hypocritical minimalist, buying more stuff. However, the things I’m buying are things my family will use regularly. It will limit the need to borrow more money in the coming years. We’ll also be letting go of all our old electronics and bicycles. So I’m replacing, not collecting.
That’s the key to using extra cash. Use it for needs. Offset future debt by buying things you know your family will be needing in the near future.
Of course, for me, this is all part of a larger plan. In the coming months, I’ll be doing some major downsizing and making some big changes to continually move toward living a simpler life. I’m posting here less often, but when I do, you can expect real-world examples in the here and now.
I invite you to come along for the journey. I’d also like to invite you to follow my other blog at danerickson.net. What will you do with your tax return?