It’s tax season! Nearly 8 out of 10 Americans get tax refunds according to CNN. A tax refund can feel like a giant payday for some people.
Sometimes a tax refund is just money you overpaid the government. Sometimes, tax credits and benefits are applied that allow you to get money back instead of paying the government.
Either way, if you get a tax refund you may be wondering what to do with it. Did you know getting a tax refund can cause you to get into debt? If you spend the money unwisely or go on a shopping spree, this can easily happen.
Instead, it’s important to use your tax refund to get ahead. Here are a few things you probably shouldn’t do with your tax refund.
Go on a Trip When You’re Drowning in Debt
I’m not going to lie, travel can be super fun and refreshing. However, it’s also expensive. Lots of people like to book vacations with their tax refund money.
While this isn’t necessarily bad on its own, it’s not the wisest decision if you have debt. A lump sum tax refund can help do some serious damage to your debt payoff.
I paid off my high-interest car loan a few years back with help from my tax refund. It wasn’t the most exciting thing to do with the money, but it saved me so much in interest.
I’m technically still supposed to have the car loan and make monthly payments. I can’t even imagine how much interest I would have paid over the course of the past 3 years had I still had the loan. Paying it off early allowed me to free up more of my income so I could actually afford to go on a vacation and pay for it in cash.
Buy a New Car
Do you really need a new car, or do you just want one because it’s tax season and all the car ads are tempting you to “upgrade”.
Slow down and look at ads and commercials critically during tax season. It will seem like almost everyone wants you to buy something or they promise you this awesome once in a lifetime deal.
That is because they’re trying to help you spend your tax refund money…on their product! Car lots may actually even mark up the price of vehicles around this time of year but claim you’e getting an awesome deal if you finance.
Don’t fall for this trick and finance a car for 5 to 7 years. Even if the payment is low, you’ll be paying a ton of money in interest and for a long time.
If you keep trading in your car, you’ll never get rid of your auto loan.
I know this sounds silly, but it’s definitely a possibility. The first year that my husband and I dated in college, he received some refund money from financial aid. Do you want to know what we spent most of that money on? Food!
Yes, it’s true. He received around $1,000 back and we dined out religiously over the following months. He always “treated” me to lunch or dinner and little did we know, we were literally eating the college refund money.
There are so many better things we could have done with that money like adding it to savings or catching up on bills.
It’s tempting to dine out and treat yourself with a nice meal when you get a lump sum payment. It’s fine to do this occasionally, but don’t make it a daily habit. Stick to a grocery budget and dine out intentionally when it’s most important to you. Learn how to cook meals you love at home and pack your lunch so you can do other things with your money.
Indulge in Retail Therapy
Once you get a tax refund, you may feel the urge to go shopping for all the things you think you wanted over the past year. Maybe you want new furniture, a new wardrobe, or new shoes for the kids.
Tax refund shopping sprees can be dangerous for obvious reasons. You’re more likely to overspend and even take on debt with a credit card or a loan. Plus, you always have to ask yourself if you really need those things.
Instead of shopping with tax refund money, keep a running list of all the things you need and budget for them regularly so there’s not a buildup.
If you listen to nothing else in the post, please, don’t go gambling with your tax refund money. Gambling is a huge risk from the start but it’s even riskier if you have more money to play with.
Gambling is also addicting, and there are much better ways to enjoy your tax refund money.
You can go on a day trip or a weekend trip. Or, you can go to happy hour with friends at the bar or a nice dinner. Any of those experiences are much less risky than putting all your tax refund money on the gambling table.
I hardly gamble, unless I’m in Vegas. Even then, I’m pretty conservative and cheap as I like to play the penny slots. I don’t expect to earn a fortune from gambling and I don’t know anyone who has. Instead, invest your money and let it grow over time.
At the end of the day, your tax refunds will come and go. It makes sense to use the money to help yourself get ahead financially. Aside from that, get on a budget that allows you to address your needs and wants regularly and avoid letting things build up.
That way, you won’t feel like you need to spend a lump sum payment fast when it comes in.
Do you get a tax refund? What do you plan to do with it?