Getting a refund on your taxes kind of feels like winning the lottery (even if the money already belongs to you).
But before you spend it all, make sure you’re getting the most out of your money. Not all expenses are created equal, so try to avoid these common mistakes with your tax refund:
1. Doing nothing with it
Perhaps the biggest misstep for your infusion of cash is to just store it in your checking account. If you don’t have a plan, you’ll likely end up spending it on daily expenses. (And at the end of the day, do you really want to say you spent your tax refund at the coffee shop?)
As soon as you know it’s coming, plan to put it to good use by paying down credit card debt or starting an emergency savings account.
2. Going on a shopping spree
Buying something you really want isn’t bad. But when you go on a full-blown shopping spree, you typically end up with a bunch of items you don’t need. However, using the cash on an important purchase like a down payment on a house is smart, as it’s an investment in your future.
3. Taking a luxury vacation
Not to be a buzzkill, but try to avoid taking a spontaneous or expensive vacation with your new money. We all need to get away once in a while. It’s an important way to decompress. So rather than blindly booking a trip, plan wisely. Find a meaningful destination that won’t break the bank, and start a vacation fund with your tax cash. 4. Using it for bills
Using your refund to pay off immediate expenses isn’t necessarily a bad idea, but try not to count on it. Here’s why: your bills all have hard deadlines. The IRS, on the other hand, doesn’t face a late fee if your refund gets delayed, and you’ll still be on the hook for the bills.
If you can swing it, pay your bills on time as you normally would, and use the refund for savings or other long-term expenses. (ref: https://langleyfcu.balancepro.org/resources/newsletters/four-ways-not-to-use-your-tax-refund)
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Disclaimer: All the information in this blog is published in good faith and for general information purpose only. It does not make any guarantees about the completeness, reliability and accuracy of this information. Any action you take upon the information you find in this blog is strictly at your own risk.