Life Stole Our Tax Refund

Life is a cruel master and routinely gets in the way of our financial goals. If we want to be “normal” people, have friends, live beyond the fringes of society and occasionally have a splurge, we need money.

This is the true story of how life stole our tax refund.

life is expensive

After the dust settled on our taxes in April, we wound up having about $1,100 in tax refund checks coming our way, between state and federal. About the same time I was invited on a bachelor party for a coworker. I figured I’d just pay for the trip out of the refund and send what was left to our European Vacation Fund.

The bachelor party ended up being more expensive than I predicted. After having to buy a new battery for my car (which would have had to be done anyway), I left Louisville $650 lighter. Sixty percent of the windfall gone in a weekend.

I also didn’t think about the wedding a week later. Because I’m a 30 year old big boy now, social norms dictate I must gift approximately $100 to my coworker. After factoring in travel expense, lunch and drinks before the reception, and some cash to our babysitter, we were down another $150.

Almost 75% of the windfall gone….

Part of this is because I owe our childcare provider an extra $150 this month because the way the calendar falls, I need to pay for three weeks ahead instead of our normal two. I also bought a new wedding ring because my original one doesn’t fit anymore ($50), and some random fast food and restaurant meals, and somehow the $1100 was whittled down to $288.

That’s right, life stole 75% of my tax return and I need to report a robbery.

Part of this disappearance is because my credit card billing cycle is mid-month to mid-month, meaning I am paying for half of last month’s spending each month. (Before you chime in, we pay the statement balance in full each month, avoiding interest and accruing cash rewards).

I’d like to get us back to the point where we are paying our entire month’s credit card spending off at the end of the month, but like I said, that would require me finding an extra $600-700 to get us “caught up.” I don’t see this happening until we pay off our remaining student loan debt in 3 months.

Luckily we live on 64% of our income, leaving us 36% each month to pay off our debt and save a little for a nice vacation.

 

Because I don’t do spending updates here, I’ll just give you a peek at what an average month looks like for us:

  • Average Take Home Income: $5,700
  • Average Spending on Bills: $2,300 (mortgage, taxes, insurance, utilities, childcare, etc)
  • Average Spending on Wants/Needs: $1,500 (groceries, supplies, entertainment, gas, etc)
  • Extra Monthly Spending on Debt Repayment: $1,650 (extra lump sum on top of minimums due)
  • Monthly Savings for Private School and Vacation: $265

 

As you can see, we cut it pretty close each month: (5,700-2,300-1,500-1,650-265= BREAK EVEN).

Yes I realize that the math actually equals NEGATIVE $15 but that is due to rounding and averaging, and the fact that not all spending is paid for in the month it is accrued.

We always spend less than we earn.

What’s the Lesson Here?

The lesson here is that life is unpredictable. That is why our spending plan is built around that unpredictability. Our planned spending on wants and needs is anticipated at around $1,300 each month, but there are ALWAYS uncertainties and surprise expenditures, so I actually plan for $1,500.

The only repercussions I will face from life stealing our tax return is in our vacation fund. I am expecting our trip to cost around $5,000. I was planning on having $1,000 of that paid for by this tax return.

While I technically still have about a $500 buffer on our debt repayment (meaning in the last month of repayment I only need to pay the full snowball amount minus $500), I am going to have to figure out some creative math in order to pay cash for this trip, because I’m tired of floating expenses on the credit card.

Readers: what’s the best way to get in front of life’s problems?

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50 thoughts on “Life Stole Our Tax Refund

    • I think that’s the best approach. I like to live close to the wire, so if anything happens I can just reduce my debt payoff accordingly.

  1. Nearly the same thing happened to me this year. I received a fairly large tax return even though I tried not to. A $1500 all inclusive bachelor party in Mexico, destination wedding I attended and some car repairs and I’m left with a few hundred dollars.

    Every time an unexpected sum of money heads my way, life promptly removes it.
    JW @ AllThingsFinance recently posted..Options Are Complicated For A ReasonMy Profile

  2. Well, I wouldn’t necessarily classify those as problems. I would classify those things as “life” and you have to learn to plan for that.

    If you knew about the bachelor party a few months in advance I would have saved a little each month to get you there. The wedding gift would have also been planned for in advance and I would have saved $20/month for 5 months instead of having it all come out at once.

    Other than there I don’t think there is much you can do…oh, other than saying “NO” of course.
    Jason recently posted..Recipe: Meatless MeatloafMy Profile

    • Yeah, I think that’s the key – I was surprised by the bachelor party invite and was not expecting it at all. I try to “cash flow” things that will be under $1,000 and save in advance for any that will be above that.

      Thanks Jason!

  3. It sounds like the extra buffer that you provide in your budget is a good way of dealing with this kind of stuff. I usually end up paying for those things with my unofficial emergency fund. It’s probably best not to dip into that so often, but I usually build it back up right away.
    Modest Money recently posted..Treating Your Job As An InvestmentMy Profile

    • Yep, my extra monthly debt repayment, since it’s so large, acts as an emergency fund. I also have a few thousand dollars in an account just in case. I find that most setbacks can be handled within the monthly budget, and worst case scenario I have to send less towards debt repayment.

      Thanks Jeremy!

  4. First of all, what a terrible picture. Especially for us poor folks who subscribe via email — all I saw was a scary picture and one line about how life stole your refund — and I clicked over worrying about you! So don’t do that to us. Second, why don’t you do spending updates on your blog?
    Frugal Portland recently posted..Two Tools I LoveMy Profile

    • I’m sorry! I probably should have used a more innocent picture, but I couldn’t find one of a corny looking burglar.

      Regarding spending updates, I guess I feel that people wouldn’t be interested in them. I could be convinced otherwise 🙂

      Thanks for your concern!

  5. I think you need to adopt a ‘glass half-full’ perspective! Seems you would have had all of those expenses, regardless of your tax situation. So the timely tax refund helped you finance the extra expenses instead of going into debt to pay them. You’re a lucky man!
    Kurt @ Money Counselor recently posted..Facebook IPO: Not for MeMy Profile

    • You are right – without that return I would have had to cut my debt repayment in half for the month, which would have made me very grumpy. Life has a weird way of giving and taking.

    • I know how you feel. One day we can get the hand of money off our throats and start actually controlling it. Thanks Jessica!

  6. This has also happened to me, but not this year. This year it helped pay off the last credit card. Now I have three debts left and the next one is going down!

  7. I know some people who have a rainy day/slush fund to handle these expenditures, but then you’re just locking up another chunk of your income in a place where it’s probably not going to earn you any significant money.

    And, I’ve said this before and I’ll say it again: I don’t think you should factor your car battery into the cost of the bachelor party. That battery was going to die anyway – it’s mere coincidence it happened that weekend!
    Elizabeth @ Broke Professionals recently posted..How to Avoid Falling for High Pressure Sales TacticsMy Profile

  8. It is really difficult to plan for every expected expense, but like you I like to have a buffer. I also pay for my CC charges mid-month (so I’m paying off expenses from the previous month) because I do not pay for interest and I use them for rewards. I think you can call your CC company and change the due date or statement end date to the end of the month/1st of the month. Chase asked me if I wanted to do that but I stupidly said the 10th of each month. I think I’ll take my own advice and change it to the 1st of each month.
    From Shopping to Saving recently posted..How To Tell If You Are a ShopaholicMy Profile

    • I usually pay two weeks before it is due, but I’m still paying off purchases from the month before. I just need a month of debt freedom to get ahead of myself – I used to be then Christmas set me off track.

      Thanks S!

    • I think what EE means is a separate fund where you put like $50 a month to cover unexpected wedding gifts, baby showers, graduation presents, etc. That way you are never truly caught flat footed when something comes up.

  9. Your monthly situation is eerily close to ours, John.. and that’s just the way it works.. Whatever our take home income is, our lives kind of adapt to fit around that number..

    I wouldn’t feel bad about the tax return.. The bachelor party was a good time, and if you hadn’t spent the tax money on it, where would that money have come from? Skimping on groceries for a month? Taking the funds from your private school fund? You had a little bit of money to play with and you played with it. It happens.
    jefferson recently posted..How to Choose a ToiletMy Profile

  10. Finances, like life, are often fluid. Although the amounts you spend each month are usually within a certain range, something will come up to offset your financial homeostasis.

    It’s fantastic you had so many options available to offset the extra expenses- tax refund, additional debt payoff money, etc.

    I just hope you had FUN!
    Financial Conflict Coach recently posted..Fighting About Money? Remember The 3 P’s!My Profile

  11. I blame those unexpected expenses on Murphy, better known as ‘Murphy’s law’! He robbed us in April in the form of Uncle Sam, a broken dryer, and kids’ graduation expenses 🙂 When I hear ‘slush fund’, I always think of the government and corruption, wonder why? Anyway, glad you made it through the month and hopefully the rest of this year will bring you unexpected windfalls that will help out!
    Monica recently posted..Mr. Money Mustache – Not Your Average PF BloggerMy Profile

  12. Whast a coincidence, I just wrote about this! (see link below). I use what I like to call “Savings Buckets” to save up for those “unexpected” expenses. The thing I love about it is that is ensures that these occasions don’t interrupt our normal monthly budget. I’m definitely not saying that I can account for everything, but this fund helps me not worry about the things that I can plan for. If other things come up that I can’t plan for, that’s usually the emergency fund, but if it’s not a true emergency, we try and cash flow it with any monthly excess we have (which at the moment, is none). 🙂
    Jacob @ iHeartBudgets recently posted..Budgeting Basics (Part 5): Your Savings BucketMy Profile

  13. This has happened to me many times, it makes me feel like I’m treading water instead of making progress. Last time I got a windfall, I immediately put it on my debt, so that “life” didn’t have a chance to snatch it away. It worked! I had to say no to a few things afterwards, but it went towards debt instead of spending.
    Jordann @ My Alternate Life recently posted..Would You Work Any Job?My Profile

  14. I over estimate everything under the sun. This way I can hope to have a tiny little buffer. But it’s at least good that it took your tax refund and not some other budgeted item, right? I will admit that I’m grouchy when people don’t give me enough time in advance because I currently try to budget gifts for baby showers, weddings, etc a few months ahead of time. That way it’s a lot easier on my wallet.
    bogofdebt recently posted..Entertainment optionsMy Profile

  15. Yep – Buffer for sure. We have a hard time saying “no” to things like bachelor parties and other events for friends, but we’ve been a little more aggressive in that to try and keep known events but unknown costs out of control. It’s tough though for sure and NOT an exact science!
    Nick recently posted..Sometimes it’s about way more than mathMy Profile

  16. I’m sorry that your tax refund plans didn’t go as you had hoped! As someone in her late 20’s, I feel your pain. All of my friends are getting married and what’s worse – I moved away from my hometown years ago so whenever there’s a wedding I have to pay for gift, dress, and plane tickets. Then when I’m in the wedding the expenses (and stress of planning from far away) compound. It’s frustrating but it seems like there’s always a phase in life where you have less control over your money because of outside circumstances. Good thing you overestimate on your budget – that’s a good way to try and stay ahead!
    Shannon-ReadyForZero recently posted..Credit Unions vs. Banks: Which Should You Choose?My Profile

  17. At the beginning of each month I always try to predict which irregular expenses are coming such as a dental check up, oil change, etc. Unfortunately, I can’t predict everything that comes my way, so I always try to include a cushion in my budget for life’s unpredictability
    LifeInTransition recently posted..Wedding BudgetMy Profile

  18. Life IS unpredictable! That’s something I’ve learned since being out on my own. I started an emergency fund early though, and it’s served me more than once when money was tight. It’s insane how much of a budget buster some months can be.
    Ryan recently posted..How to Find Honest Home RepairMy Profile

  19. I put an extra $50 a week in my checking account for the unexpected stuff. Then if I don’t end up using it that month I transfer it over to savings, but it always seems like the little stuff does come up and I end up spending the money.

  20. Curses to partying it up and having a good time!!!

    How do you feel about your savings rate/amout? Ever thought of increasing it until it hurts?

    Sam

  21. Hi, It is such as disappointment to have something so wonderful sucked away from you so easily. Talk about frustration! I have written about this in my most recent post, but I will share it here, it is about extra income. When our household gets extra $$, it gets divided up into 30% to our bills account as a buffer, 30% to save for a specific want, and 40% towards travel (conscious spending). I only wish I had implemented this a little earlier as we have some unexpected expenses currently. Like you John, any nasty surprises that come along mean a reduction in debt payment and like you, that bothers me. Sure, all of the extra moula could go straight into debt payment, but for one, ya gotta have a bit of fun, for seconds, at least the stolen tax refund impact is lessened by having a bit of a buffer.

  22. For expenses like household repairs, car maintenance, medical/dental I’m putting aside an amount each month that is at least 1/12 of the average yearly amount. When I need to change the oil, buy a tire, pay a deductible or other medical expense, repair an appliance, etc., I have the money set aside that is designated for that. I don’t buy a lot of gifts or go to parties but if I did, I’d have to have a fund for that, too.
    You know eventually you’ll need to have repairs done and you know you need to get check ups and oil changes on a regular basis, some of that can’t be a surprise.

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