Everyone loves tax refunds. After all, who doesn’t enjoy money in the mail? But often people forget that a refund isn’t a prize, reward or gift: It’s your own hard-earned cash that was on loan to the government, and it should be spent as such. This year, before heading to the mall with refunded cash in hand, consider a few do’s and don’ts.
Don’t hit the casino.
Avoid confusing a check in the mail from the government with a stroke of luck. Most people get a refund. Trying to make it grow exponentially at the blackjack table probably won’t work, and you could end up in a deep financial ditch.
Do invest in the future.
If you put a tax refund into a retirement savings account such as an IRA or a 401(k) and add a decade, it may be significantly more valuable due to the returns it can earn. That’s generally far less of a gamble. Financial institutions such as First Alliance Credit Union can help you get an IRA set up.
Don’t go on vacation.
Tax refunds usually are conveniently delivered between spring break and summer vacation. After months of the winter doldrums, it can be tempting to buy a last-minute ticket to the Caribbean. But in addition to sunburn, you risk returning home with a financial hangover.
Do pay down high-cost debt.
If you’re carrying the burden of high interest credit card debt or loans, it’s a good idea to pay down as much as possible with your tax refund. The money that would have gone to paying off the debt each month can then be set aside into a special vacation fund for later.
Don’t buy a puppy.
If you’re casually staring into the irresistible puppy-dog eyes of a Goldendoodle at the mall, look away. Dogs cost an average of $875 a year on food, vet bills and miscellaneous expenses. Try not to blow the refund on something that will cost you more in the long run.
Do finance a needed expense.
If you are going to spend the refund money, at least use it on something that you need and have been putting off doing, such as a replacing a finicky fridge or getting a new car.
Use your tax refund to get ahead this year instead of digging yourself into a hole. It’s never a bad idea to earmark a portion of the refund into a separate savings account to pay down other taxes as they come up each year.
Content provided by Cait Klein, NerdWallet.
Want to know more about using your tax refund wisely? Check out this video from KIMT News 3, featuring our Member Service Representative, Barb Schriever.