No. Experts say that getting a refund means you paid too much in taxes. You really want to come out at the end of the year having paid exactly the right amount or owing a little.
Emergency (a.k.a Rainy Day) Fund
Most financial advisers agree a cash emergency fund is the first step toward financial success. An Emergency Fund is Murphy repellant. It is the anchor that keeps the water pump gremlins and transmission demons from dragging you back into debt Hades. So if you don't have one, that's absolutely the best place for your tax refund. Stay tuned. I'll devote a whole article to all the benefits of the amazing, wonderful and life-changing emergency fund soon.
If you have consumer (non-mortgage) debt
Start your emergency fund off with $1000. Everything over that should be paid down on your smallest consumer debt. If your refund is enough to pay off the smallest debt, put the rest on the next largest debt. Continue to pay off consumer debts in order from smallest to largest until either your tax refund runs out or you pay off all your consumer debt. (oh happy day!)
Are you consumer debt free?
Once your consumer debts are gone, the emergency fund needs to be increased to 3 - 6 months worth of living expenses. Wow. Close your eyes and imagine your life with no debt except the house and a large cash emergency fund. Can you say "financial peace"?
Attack your mortgage
If you have no consumer debt and a fully funded emergency fund, use your refund to attack that mortgage. Its absolutely mind boggling how much money you can save in interest payments by putting extra principle down on your mortgage payment. You want to check with your mortgage company to make sure they allow early principle payments and if so, exactly how to do it. I've heard that not all mortgage companies allow early principle payments but never actually seen a specific case of that. My mortgage company takes any amount we send them over the regular monthly payment and applies it directly to principle. That's exactly what I want them to do. However, not all companies do it that way. Some will apply any excess payment to the next month's payment. Others require you to mail a page from your payment book in with your check with a written indication of exactly how you want your payment applied. The bottom line is: you gotta check with your mortgage company to find out what to do.
No Mortgage Nirvana
Honey, if you're consumer debt free, you have a cash emergency fund and a paid off mortgage you're there. Go have some fun with it. Give it to someone in need. Take a vacation. Buy that eclectic chair you've always wanted. Whatever. Why are reading this blog?
