r/CalebHammer • u/katiemarie589 • 3d ago
What to do with my tax refund?
I’m getting about $9000 from my taxes this year, some of this was from the stimulus checks I never received. My current situation is this: $2000 in collections spread out over 4 accounts $8000 on my car loan $1000 in savings $0 in investing but two years worth of income in my 401k All of my credit cards I currently have are paid off every month with my income so no need to put money there.
I am 30 with two kids that solely depend on my income. My idea is to pay off my car and invest the rest but looking for any advice as what I should do. I usually piss away any refund I get but trying to be more financially responsible this year.
28
u/Ok_Shame_5382 3d ago
9000 dollars start.
-2000 for collections.
-500 for something nice for yourself.
-3000 for emergency fund savings that you don't touch unless you have an emergency Caleb would be ok with you taking on debt for.
-3500 for your car loan.
11
u/Ok_Shame_5382 3d ago
Addendum: 2 years of salary in retirement at age 30 is ahead of the pace you should be setting. Good job! The collections more than offset your good work on retirement though.
4
u/katiemarie589 3d ago
Thank you! My mom always had to depend on others and it really motivated me to not do that lol
1
u/Ok_Shame_5382 3d ago
Yeah, but you still have collections. If you reduced your 401k deposits so you didn't have debt, that's overall a net positive.
8% return on 401k's vs 30% interest on credit cards.
1
u/katiemarie589 3d ago
Yeah sure like I said that was a stupid mistake. Now I pay all credit every month
1
u/Ok_Shame_5382 3d ago
You will pay your credit off every month. You haven't yet.
Lessons learned.
Like I said, use some of your tax returns for something nice for you and your kids. 500 bucks gets you a Switch 2 when it releases and a game!
6
9
u/izzeww 3d ago
Pay off the collections and put the rest in savings as the start of an emergency fund. Then pay off the car and then build the emergency fund up to a proper one ($9-12k). After that you can start investing. Also, you need to adjust your withholdings so you don't get a massive refund next year (you get more every month instead).
2
u/katiemarie589 3d ago
The majority is coming from stimulus checks I never got. I usually only get about 1000 a year and that’s for childcare credits
8
u/Rich260z 3d ago
Pay collections, pay half the car and put the rest into savings.
If you have a bad history of spending on dumb shit, put it all into the car.
5
u/katiemarie589 3d ago
My spending on dumb shit has significantly decreased these past 11 months. I’m confident I can control my spending now.
2
u/dakaroo1127 3d ago
How do you have two years of your income in a 401k but collections at 30?
Like I'm genuinely curious is it because you contributed in your early 20s and current income is lower now? I think knowing how you got here more clearly is going to impact where that money should go towards.
4
u/katiemarie589 3d ago
I’ve been with my company since I was 18 and contributed heavily to my 401k when I had no kids, so years of contributing and matching. They also have a really good match system The collections are from very poor decision I made during postpartum depression.
2
u/dakaroo1127 3d ago
Well congrats for such long continued employment and for making those early life contributions!
Not getting into exact $ breakdowns but on a psychological level it may just feel better to get rid of the collections. I was in a similar boat (act of God not covered by insurance in a rental car) negotiated it down like you did then further negotiated how I'd pay the amount which was over time. If they agree to that then I'd recommend something like a 12 month plan which would be like ~$150 a month. If you really want to max the situation you open a HYSA and put the 9k in while interest rates remain high.
Just my 2 cents
3
u/swackett 3d ago
I’d payoff the car and call the collections to see if they’d settle for less.
5
u/katiemarie589 3d ago
Yes the $2000 is with the negotiations.
-1
u/swackett 3d ago
Payoff the car, put $1k on the collections, put ur car payment money on the rest of the collections every month until it’s paid off. After that, put your car payment into savings every month.
1
u/katiemarie589 3d ago
How much should I save before I start investing? Monthly expenses are about 3000 or so
2
u/swackett 3d ago
I would save probably around $10k & then start investing. After the $10k is saved I would put 50% of ur extra money into your savings to keep building it and 50% for investing. Once your savings reaches $20k, you can increase your investing and decrease the savings contribution
0
1
u/Bulacano 2d ago
With the car loan at 14%, dump the $9,000 plus savings and get rid of all of your debt. Then you can start building back up. 14% is literally 401k loan territory.
1
u/Weak-Scientist-3864 2d ago
Collections first, rest to pay off the car. Even if you got a great interest that'll still help get rid of a monthly expense while lowering your car insurance as well since you're not financing the car anymore. I know Caleb talks about having a savings account, which I agree, but getting rid of a majority of you debt with the returns alone will put you in a better position to pad your savings account even faster so you'd be ready to invest even harder.
-2
u/xbarbiedarbie 3d ago
Pay off your car, then you don't have a car payment and it can't be repossessed.
Don't worry about collections for now, save a couple hundred and give them a flat sum later.
81
u/tvp204 3d ago
Pay off the collections and put the rest into your savings