A tax refund can be ideal for paying off debt, building your
saving account or replacing an aged home appliance. Unfortunately,
it can fund less-worthwhile endeavors just as easily.
While there's nothing necessarily wrong with having some fun
with your tax refund, you're almost sure to regret buying anything
that offers few long-term benefits. After all, you may not see
another lump sum like it for another 12 months - if then.
Here are five questionable ways to spend your tax refund, along
with some alternatives designed to help you avoid mistakes.
What's better than getting a sizable tax refund? Making that
refund bigger by placing a winning bet on an underdog pony that
seems to have an extra spring in its step on race day. But before
you place that or any other wager, consider the depressing walk
you'll make back to your car if your hopes get ground beneath the
hooves of 19 faster steeds.
If you're dead-set on risking some of your refund, investing in the
stock market may at least offer a longer period of suspense. You
might also consider a mutual fund if you're able to stomach
slightly less excitement.
Yes, a party of historic proportions may produce some great
memories. But unless those memories are worth the cost of drinks,
food and maybe some drywall replacement, it's best to think twice.
This is especially true if the memories of your last epic party are
Throw a spring celebration, but opt for a potluck instead. If you
know your friends may have received a refund as well, you may go as
far as to institute a BYOB policy.
It may feel like fate when a flat-screen TV goes on sale on the
same day you receive your refund. But it's not. Flat-screen TVs are
always on sale somewhere. While the initial buzz of a
spur-of-the-moment purchase may be exhilarating, it may not be long
before it's replaced by another potent emotion: buyer's
Make a list of all of the things you've wished you could purchase
outright during the last year, and carefully select something from
it. You're less likely to overlook
other, more useful purchases
this way. Even then, once you've reached a decision, it couldn't
hurt to sleep on it.
A phone on its own may not be an unwise purchase, but a new
phone is often cheaper when you agree to extend your contract at
the same time, and it may also require a more expensive data plan.
Using your refund to heighten your financial obligations in the
future is no way to get ahead.
If your phone truly needs to be replaced, make sure that your new
won't overextend your monthly budget
. If that's not possible, consider giving your old phone a tune-up
by transferring your old photos to your computer and deleting your
rarely used apps. This won't make your phone new, but it's unlikely
to wreck your finances either.
Sure, all of the items above can result in your refund
evaporating quickly. But most of them will still yield a decent
story. Letting haphazard spending habits erode your refund as it
sits in your checking account is a great way to end up with no
money and no real tale to tell about how you spent it.
If you suspect your refund may fall victim to checking-account
overspending, have it direct-deposited into your savings account
instead. While you'll still need to exercise discipline to avoid
spending it, it will at least enjoy a buffer from your debit
As pleasant as it is to receive a refund, adjusting your tax
withholding status to prevent future refunds has its advantages.
No, you may not get a lump sum each spring, but investing the extra
money you get in your paycheck in a
high-yield savings account
certificate of deposit
allows your funds to earn interest throughout the year.
Although deposit yields remain at historic lows, shopping around
can still result in a reasonable return. And if you've already
abstained from throwing a legendary party and spending an afternoon
at the horse races, you deserve every penny you're entitled to.