Your tax refund. Everybody wants a piece of it. Brace yourself for a bombardment of advertising telling you how to spend it. Big screen TVs. New cars. Vacations. All the latest toys. Your refund feels like free money, so you feel like you can splurge a little with it. Don’t fall for it. Remember, your refund is just the amount that you’ve overpaid in taxes throughout the year. So technically your refund is the portion of your income that just got to your bank account late. So treat it with the same attitude you treat the rest of your income. You worked just as hard for it.
Of course, financial pros like to argue that you should arrange not to get a refund at all. By overpaying taxes throughout the year, you are essentially giving the government an interest free loan. Instead, you should adjust your payroll withholding to match your actual year-end tax owed. This is a valid point, although relatively insignificant in today’s low-interest rate environment. And regardless of what pros say should happen, the majority of people aren’t going to bother adjusting their withholdings and will continue to receive a refund (over 80 percent last year).
So if you’re part of the majority that will still receive a refund, what should you do with it? Spend it wisely. If you’ve spent much time reading my blog, you know that I’m not going to tell you exactly what to do with it. It’s your money, not mine (although if you really don’t know what to do with it, you can make it my money). Just don’t spend it on an impulse purchase because you feel like its free money. And don’t go crazy over it just because you haven’t seen a thousand dollar check for a while.
Consider your goals. Perhaps your retirement account or emergency fund could use a boost. And maybe you do need a new (or new used) car, or a vacation! If you’ve intentionally planned for your tax refund to act as your vacation or car savings, that’s just fine. Just do it because it fits into your broader budget, and not because you got sucked into it by impulse and advertising.
Some links pay our bills. Our thoughts and opinions remain 100% objective. Find out more.
- While I do strive to only write accurate information and dispense valuable advice, I am not a licensed financial adviser. All information is based solely on my personal experience and personal research and should be treated as such. Find out more.