Thanks in part to the recently passed tax cuts, I will be getting the largest tax refund I have ever gotten. Specifically, I will be getting a minimum of $5000. Thank you Government. I don’t say that every day. Well, because of that refund, I have a good problem. How to spend my tax refund? I honestly don’t know, but here are a few honorable mentions.

Pay Down Student Loan Debt

As you know, I have a plan to pay off my student loans by the end of October of this year. The plan includes paying a minimum of $2000 towards this debt. So far so good. I started the year at around $19000 and now I’m down to around $15000. At this pace, l fully intend on paying off my student loan debt in its entirety by October. To follow my progress, check out my debt tracker.

I’m leaning against using my tax refund to pay down my student loan debt. The main reason is that this debt is a low 2.625% interest rate. Also, the minimum payment is only $97.61 per month. I feel I am doing more than enough to take care of this debt and get rid of it by October. Time will tell if I’m able to meet my goal, but for now, I don’t plan on putting this $5000 towards my student loan.

2. Buy A Used Car

As detailed in my post about increased expenses, one of things I’m going to have to decide this summer is whether to buy or lease a car. I’m leaning towards purchasing a used vehicle as opposed to a new one. At present, the only debt I have is my mortgage and my student loan. My student loan will be gone by October. And my mortgage is currently being paid by a tenant. Without the tax refund, I would have likely financed a used vehicle. Then, after I got done paying off the student loan, I would divert that $2000 towards paying off the car. However, with the tax refund, I could try to put that $5000 towards a used car. Heck, it might even be enough to purchase the car outright.

My only problem though is myself. If I have a lot of money lying around, I tend to spend it, little by little, on frivolous things. So, I try not to have a large amount of money easily available to me. So, it takes a little bit of discipline, but I’m going to have to fight with myself and not use that money after I get the return.

In any case, $5000 down on a $10000 car would be great, because that would mean I could have a fully paid for car in a relatively short period of time. That’s especially true if I’m dumping $2000 towards a monthly car payment (after student loans). Finally, the increase in income that I’m likely to realize this summer may allow me to pay off a higher priced used car at the same time as my student loan. Now that would be sweet!







3. Invest The Tax Refund

An enticing option for the tax refund would be for me to invest it in my dividend portfolio. Who wouldn’t want to go on a shopping spree and either add new companies to the portfolio or increase the shares in the existing holdings? Quite frankly, this would have been a no brainer if I was out of student loan debt and didn’t have to worry about a car payment. This is why having debt sucks and why I want to get rid of it as soon as possible. It just keeps me held back.

While this remains an option, I not leaning towards it. I’ve already increased my contributions this year in accordance with my financial plan. I want 2018 to be the last year that I carry non-mortgage debt. That way, in future years, when I get a hefty tax refund or a bonus, I can just worry about how best to invest it.

4. Take A Vacation

There is a definite possibility that I would use a good portion of the tax refund to take a vacation. I was already planning on taking a vacation to Spain before my summer move. I hear Barcelona is a good place to visit and I’d like to go. London is another possibility as well. Taking such a trip could easily cost me between $1500 to $2000.

It’s possible I might go to a less expensive destination or do something more low key for my vacation. But, I plan to be working a lot for my next job, and have a very stressful next few months coming up in my current position. So, I definitely need a break.

In the past when I’ve taken international trips, and spend the $1500 to $2000, I did so using credit cards. Well, I’m much more financially conscious now. Part of me feels guilty spending so much money on a trip because I could have used that money to invest. That same part suggests that I should temporarily sacrifice expensive trips now, so that I can take all the trips I want when I retire (hopefully earlier than the traditional retirement age). Then there’s the other part of me that says I only live once and I deserve this break after working so hard, before jumping into another position that’s also difficult. After all, life isn’t all about money.

We will see which part of me I listen to. I’m leaning towards taking a vacation, but keeping my costs as low as possible, while also having a good time.

5. Do Nothing

But for the recent flash crash we had in the stock market, I never would have given this option much thought. Because I live paycheck to paycheck, I don’t really have a large chunk of cash set aside to take advantage of price decline in the stock market. The approach I’ve been taking is to dollar cost average my way into the market. I get paid and a portion of my paycheck gets automatically invested via my retirement and taxable accounts. This approach works for me.

But then we had the recent flash crash. I wish I had an extra $2000 or so to take advantage of price declines in some of my favorite holdings, including Realty Income. Unfortunately, I was unable to do so in large part because I didn’t have cash lying around.

So apart of me thinks that I should hold on to this money to invest it in what may be a market correction to take advantage of lower prices. I guess that’s like market timing, which rarely few people do well.

For now, I’m leaning against this option, but more and more, I am appreciating the value of having cash that is ready to be invested in the stock market at the appropriate time.

Conclusion

There are other things I could do with the tax refund. These includes saving for a down payment on another house, or buying a new computer. But, the above options are the more realistic and I’m likely to pick one of them. Right now, I’m leaning towards paying cash for my vacation while keeping that expense as small as possible. Then use the difference to buy a used car or pay for the down payment on a used car.

Are you getting a tax refund this year? What do you plan to do with your refund? What do you think I should do with mine? Let me know by commenting below.