I realized this month that my goal of saving $25,000 in one year may have been a bit shortsighted and possibly detrimental to my real goal, which was to live more simply and not waste money. Saving that much cash is great if you don’t have any debt and if you don’t bypass future growth opportunities.
We got a large tax refund this year, partially thanks to all of the items that we donated, but mostly due to the interest on our expensive DC-area mortgage and a miscalculated W4. Because I had been working so hard on this goal, my first inclination was to just save the money in my savings account, which earns less than 1% in interest per year. Any other year I would have immediately recognized a smarter opportunity and taken it. We finally had enough money to pay off our car.
That’s eventually what we did. The 3.5% interest paid on our Subaru Outback was far greater than the interest earned in the bank, plus now we have an extra $400 buffer each month, which we can save for the next car (and eliminate the need to have another car loan…ever.)
It scares me a bit that the pursuit of this goal kept me from making this decision faster. However, given the fact that my first thought was to save the money instead of spend it is definitely a step in the right direction. I’ll keep pursuing the original goal, but I’m going to take my blinders off and make sure I do what’s best in the long run too. Here are some great, minimalist ways to use a tax refund.
Seven Smart Ways to Use a Tax Refund
- Pay off debt
- Rebuild an emergency fund
- Boost retirement or college savings
- Invest in a necessary home repair
- Take a class
- Give it away
- Invest in your memory bank (i.e. take a trip)!
The last one is my personal favorite. More great suggestions from lifehacker here. Happy saving!