Tax season is upon us! A sizeable majority of Americans – nearly 80%, according to CNN – receive a tax refund. For some, this windfall feels like a massive bonus. Sometimes, a tax refund is essentially the government returning the excess money you’ve paid over the year. Alternatively, you might qualify for certain tax credits and benefits, resulting in getting a refund instead of having to pay.
Receiving a tax refund often leaves people questioning how to spend it wisely. One potential pitfall to avoid is using your refund to finance large expenditures that can lead to debt. For instance, if you indulge in reckless spending sprees, you could find yourself in a financial quagmire.
The more prudent approach would be to utilize your tax refund to improve your financial status. Here’s a list of things you might want to avoid doing with your tax refund:
A HOLIDAY WHEN YOU’RE IN DEBT
While travelling is undoubtedly enjoyable and rejuvenating, it’s also costly. Many people are tempted to use their tax refund to fund a holiday. This might not be harmful in itself, but it’s not smart if you’re already carrying debt. Using your tax refund to clear out some of your debts can be a wise decision.
I managed to clear off my high-interest car loan a few years back with assistance from my tax refund. Despite it not being the most thrilling way of using it, it did save me a significant amount in interest charges.
PURCHASING A NEW VEHICLE
Before you rush into buying a new car because it’s tax season and the flashy ads are enticing, take a moment to reflect. Are you enticed by the vehicle itself or by the ‘unique’ offer?
During tax season, you’ll often find advertisements making unbelievable promises. Car dealerships might even inflate the price of their vehicles at this time, assuring you of an ‘amazing’ deal with financing. However, long-term financial burdens like a five to seven-year auto loan can cost you a pile of money in interest payments.
SPENDING ON FOOD
This might sound ludicrous, but it’s true. There was a time when my husband and I used most of our refund money from financial aid on dining out frequently. With the wisdom of hindsight, we realize that we could have used that money more wisely, like saving it or paying bills.
Dining out and enjoying a lavish meal with a lump-sum payment can be tempting, but try not to make it a habitual practice. Stick to a grocery budget and dine out only when it’s particularly important.
SHOPPING SPREES
When the tax refund arrives, you may feel compelled to go on a shopping spree. Perhaps you’ve yearned for new furniture, clothes, or shoes. However, such shopping binges can easily lead you into debt or cause overspending via credit cards or loans.
GAMBLING
If you cannot resist the urge to gamble, ensure that you steer clear of using your tax refunds for it. Gambling is inherently risky – even more so when you have a larger sum to gamble. There are better ways of spending your tax refunds – day trips, hangouts with friends, or a nice dinner, all of which pose significantly less risk.
Ultimately, how you choose to use your tax refund significantly affects your financial status. It’s wise to use the windfall to better your financial situation. Maintaining a balanced budget that caters to your needs regularly can prevent spending sprees when you receive a lump sum payment.
If you receive a tax refund, how are you planning to use it?
