How will you use your tax refund?

Like many self-employed folks, for me April 15 means a day to write a check to the government. Even if I do manage to get a refund, I’m still writing a check on that day to pay my first batch of estimated taxes for 2011. It wasn’t all that long ago, though, when April 15 usually meant that I would be receiving a tax refund check.

Back in those days, my tax refund check was a wonder. It usually meant some sort of giant splurge. I remember using it to purchase a new television and a PlayStation 2 in one day using my refund check in 2002 or so. In 2003, I used that refund check to buy two plane tickets from Chicago-O’Hare to London-Heathrow for a honeymoon for Sarah and myself.

Later on, especially in 2005 and 2006, our refund check usually went straight towards debt repayments. I’d deposit the check, then immediately go home and write some checks to various creditors to cover things I’d already purchased.

At this point, our tax refund wasn’t a help – it merely helped sustain an unsustainable lifestyle for another month or two. It made our awful decisions seem a little less awful and made it seem reasonable to continue making them (although, by the time the 2006 refund rolled around, we had enough sense to keep our spending under control and used the money for positive financial change).

In 2007, though, we used our tax refund to contribute to the down payment on our home. This was, of course, a positive use for our tax refund as it went toward a tangible asset. (Since then, of course, tax day has meant paying in more than we receive.)

Simply put, your tax refund check presents you with a choice.

Are you going to use it to put yourself in a better financial position? Are you going to pay off a debt – and not immediately run up a credit card? Are you going to put it towards a house down payment? Are you going to use it to save for a replacement car? Maybe you’ll use it for more education, or perhaps you can invest it in a small business. Maybe you can even drop the money into a local charity, which improves your community. All of these choices will pay you dividends for years to come.

On the flip side, you could buy a new television or take a trip with that money. Of course, as soon as that television is bought or that trip is over, you’re back in the same position you were in before.

Which side of that coin do you want to be on?

A final thought: not having a refund check has been a very positive thing in my own life. It’s forced me to be more careful about my day to day finances knowing that at the end of each quarter, I would be paying the IRS, and that at the end of the year, I wouldn’t be getting a check. Yes, the money was all equal in the end, but instead of having the government “save” my refund for me, I was doing it myself. I had to make the right choices, and I was able to reap the rewards of those choices.

Having that “bailout” check at the end of the year was a crutch that kept me from financially walking on my own two feet. Putting it aside made me stronger.

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