My husband and I are getting a large tax return this year and are at odds over how to spend it. He would like to put it in the “house account” to bankroll the ongoing renovations that we’re doing to our home. I think we should pay off one of the cars, put some into savings, then put the remainder into the house account. My reasoning is that if we elminate the car payment we can deposit the money that we would be sending for it each month into the house account and use that for home projects. He doesn’t want to wait for that account to build up enough to pay for projects, prefering to have a pool of cash available for them.
It is appealing to have that money accessible right away and get projects done more quickly, but I think my plan is better long term.
What do you guys think? How are you spending your return?
We’re going through the same discussion because we had a change in finances and got a large return too. We have to pay the second installment of our property taxes but after that we can either roll it all into savings, spend some on renovation projects, or add a bit more from savings and pay off my car loan since the interest is higher than anything we’re getting. That seems to make long-term sense as long as the monthly payment amount goes back into one or both of the other accounts. It isn’t like we don’t have savings to dip into if we want to do a larger project all at once. Part of me just wants to stash everything I have into savings until the economy settles down.
Pay the bills first. Then put that money that you would have used on the car or credit cards etc. in the house account. You will be amazed at how fast it will grow. And, it feels great not to owe on all that other stuff.
My hubby and I haven’t used a credit card in about 10 years now. We have had no credit card bills for about 7 years, and no car payments for about 3 years. We are able to put our tax refund right in the house/emergency fund now.
And, if we want to save for a car(we always buy used), or bigger household item, we just start making payments to ourselves, in a savings account, rather than buy it first and pay later.
Our lives have become so much easier. And, I was able to quit my job and stay home with our son for a few years.
Yeah exactly what DrDeth said - if the house savings account makes more interest than any of your expense accounts then by all means put the cash in there. But I’m 99% sure that is not the case, so put the money towards whatever is “costing” you the most. Otherwise, you’re actually sort of wasting money.
I’d go with paying off the car or any other debts in order from high to low interest.
Not only are you “getting” the refund, you’re also getting the interest you would have paid on those accounts. Which will be much more than any interest you would get from having it in a household account.
If you aren’t selling the house in the very near future (and I hope you aren’t in this market), what’s the rush? Save yourself some interest and pay off the car.
Definitely not looking to sell, we just bought in May and adore the house. It does, however, need a lot of work and I understand his eagerness to get some of that work done without having to save for it.
We do have a credit card balance, but it’s quite small and will be gone by the summer without having to use the tax return.
Probably squandered it without noticing it. We’re pretty lousy with budgeting. I have a retirement plan through work and we have $100 from each paycheck automatically sent to a savings account. I’m a better saver than he is but tend to go too far with it. Like saving the $50 grandma gave me for Xmas instead of buying myself something as she intended me to. If the tax refund was coming to me alone I’d probably pay the car off and put the rest towards the mortgage.
I’d definitely put off paying the mortgage as the very last thing, as it probably has the lowest rate. Put off the car as well, since it’s a regular payment. Both mortgage and car loan are things you should be budgeting for, and will help your credit rating in the long term (though I wonder myself what the point is since your big purchases are already out of the way). When your car loan comes to an end, continue paying yourself (to home improvement fund, savings account, whatever) so that you can save up for your next big purchase, maintenance costs, etc.
Otherwise, credit cards first; you would stop paying finance charges and you should still have something left over for your home improvement fund. And keep a big cushion, in this economy, it would suck to put money towards the car or house, then lose your job and not have money to make the next payment. At least you can stretch out your payments (and try not to rack up more debt) if you put money into your emergency fund.
As long as you have interest-bearing debt outstanding, you will be effectively financing your renovations at that interest rate. Would you take out a loan at the highest interest rate you are currently paying in order to make your renovations? If so, renovate. If not, pay off your debts.