Getting a big fat tax refund is a lot of people’s idea of hitting the lottery! After all, that’s why you hire a great accountant in the first place, is in hopes of getting your largest refund possible. Undoubtedly you’re excited to be receiving a large amount of cash. However, it’s essential to see a tax return as a free gift from the government.
In reality, it isn’t a gift at all. The government is giving you back a tax return because they withheld too much money from your paychecks. Because you paid too many taxes than you owed, they pay it back to you. Therefore, it’s essential to use this money wisely rather than squandering it away.
Here are some great examples of what you definitely should not do with your tax refund.
Using It As a Downpayment
Making a large purchase with your refund may seem like a logical way of using your money. However, if you look at it from a rational perspective, using money from your refund for a purchase that requires more payments is only creating more debt for yourself.
Instead of using it as a downpayment, why not put it into savings so that you can pay for your purchase all at once. Why be a slave to debt when you can be financially free? Think about the bigger picture rather than short-term satisfaction.
Buying Things You Don’t Need
Because there is this false perception that your tax return is free money, a lot of people splurge on “extras” that they don’t really need.
Although it can be tempting to use the money on things you want rather than what you need, it’s important to reiterate the importance of focusing on the long term not just short-term.
Think of your tax return as the equivalent of a paycheck. You wouldn’t spend your paycheck on a fancy new television or a pair of shoes, so why should your tax return be any different?
Nothing At All
Letting your tax return deposit into your checking account without having a plan for it isn’t wise either. Don’t treat it as extra money that blends into the rest of your resources.
It’s essential to have a plan for it. If you don’t want to spend it right away or aren’t sure how you’ll use it wisely yet, then put it into a savings account.
By putting it into a savings account then you could at least grow interest while you make your decision.
So What Should You Do?
Whatever you decide to do with your tax return should be in hopes of benefitting your life in the long term not just short-term.
For some people that means paying off debts, paying for a much-needed home repair, or whatever else will benefit your life in a positive way.