Budgeting Our Tax Refund

We haven’t received our tax refund yet, but I’ve already budgeted what we’re going to do with it.

Before any readers get up in arms, know this:

  • I have a ballpark idea of what our refund will be
  • I usually estimate conservatively, meaning that we usually get at least what I estimate
  • Most of it is going into savings

Using a couple of online estimators, I was able to forecast roughly what our tax refund will be from the feds.  I have a separate fund within our money market account (one of the many types of savings accounts we consider) where I allocate a portion of any blogging income aside to offset the increased income which does not get taxed throughout the year.  Add this to our state refund and this comprises the entire amount we’ll get back.

Without knowing the amounts, I can already tell you where it will likely go.  Things might change a little bit here and there, but overall, here’s the percentage allocation we’re likely looking at:

  • Savings replenishment – 25% – When we bought our camper last year, we went a tad bit over budget.  We have a comfortable savings and we went ‘over budget’ with the understanding that we’d essentially pay ourselves back with the refund and a percentage of other income
  • New car fund – 20% – Eventually we’ll need to replace our cars, currently 5 and 6 years old and ideally we would not take on a new car payment when that happens.
  • Home repair – 20% – We have a really big oak tree in our backyard that is dying and needs to be removed this year as it is annoying (it drops what leaves it grows around the 4th of July) and is close to the corner of the house so it presents a future danger.  It’s very tall and will have to come down in pieces so it’s probably going to be pretty costly.  We’re also continuing to save for a new roof in the next couple of years.
  • Kids fund – 15% – Little Boy Beagle will be starting pre-school in the fall, so we would like to have that paid for up front.
  • Travel fund – 10% – This fall will be our 5-year wedding anniversary, so we’d like to do something fun for that, as well as pay for the camping trips we plan on taking throughout the summer in our new camper.
  • Auto / Camper repair – 5% – Fix any routine or unexpected costs arising from the cars or camper
  • Gift funds – 5% – To pay for Christmas gifts and other gifts that we purchase throughout the year.

All that adds up to 100%.

If the refund comes in significantly higher than we estimated, we’ll often give ourselves $50-100 each in extra spending money but if we don’t get that, it’s not that great a deal.

In other words, most of it goes directly into savings with allocations to specific earmarks. The travel fund is the only thing that my wife would consider ‘not boring’ *lol*

What are you planning on doing with your tax refund this year?

Image: Calculator and tax return by Images_of_Money, on Flickr

25 thoughts on “Budgeting Our Tax Refund”

  1. We did our taxes a couple of weekends ago and just THIS MORNING found our refunds from the fed and the state in our savings account. YIPPEE! It’s just under $5K.

    With it we will be paying off debt. That’s almost $5K down from where we were last month. BOOM!

    And it gives us the security to buy some furniture (with cash) that we’ve been holding off on until we had some more stability.

    • That’s awesome. At some point it would be nice to put everything to one goal. BAM! But now we sort of spread it around. It’s nice to see the balances on those earmarks go up but it’d be great to see one big change as well. Either way, as long as you’re saving or investing with it or paying down debt, it’s all good 🙂

    • That’s great, as long as you are able to put away money throughout the year that would equal or exceed what you would have gotten from a bigger refund. I know you’re definitely disciplined enough to do that having been a fan of yours for awhile 🙂

    • I like to keep it small as well. I rather have that money working for me in investments and savings all year long. If you are expecting a big tax refund, you’re not setting up your tax payments correctly. Its your money, why do you have the government hold it all year long?

  2. Using a portion of ours to go ahead & pay for my FinCon12 trip (a bit early). The rest is going into our Emergency Fund.

    I’ll just put the money I was going to save each month for FinCon into our Emergency Fund instead. Either way, the trip is paid for…with cash.

  3. Oh how I would love a tax refund. We will owe a lot this year I am sure, although I haven’t completed our taxes yet. I work part time and even though I claim 0 exemptions, they barely take anything out for my federal taxes. (And I contribute the max to my 401k.) I could do quarterly payments I suppose, but I don’t.

    If we did get a refund though, I would split it between a vacation fund and home repair fund.

    Enjoy your refund!

    • Thanks. Not that much of it is going toward ‘fun’ but I will definitely enjoy the added balance to savings!

  4. Way to be diligent with your savings! We go to our tax magician on Monday. We’ll either owe a lot or get money back, depending on one key item. I’ve got the money saved away just in case we have to pay, so if we don’t then that money will have to be ear-marked for some category.

  5. We’re going to owe because Mr. Super Frugalette received a bigger bonus than we anticipated and I plan our taxes so that we break even.

    • Well, I’d still take the bonus over not paying the taxes as I’m sure you’ll ultimately come out ahead with the bonus 🙂

  6. it is great that you have a plan for it. Personally we are using 100% of that money to replenish our savings. We spent a lot of money on home renovations last year and my goal is to get our savings to the amount it was at.

  7. We will use out tax refund to make our first quarterly tax payment. I don’t think we will have too much left after that but if we do we will make a plan for it.

    • Well, we get ours via electronic deposit but it’s always nice to see that balance increase, if only for a day (since we immediately begin transfers to the savings accounts and such)!

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