It is essential to use your tax refund wisely. If you did not receive a tax refund last year, you are in the minority. During the 2023 tax season, which dealt with 2022 tax returns, you resulted in a refund of 64% of returns filed by April 21, 2023. However, receiving a tax refund is not necessarily good as it means you overpaid in taxes and provided the government with an interest-free loan. To avoid this, you should review your tax withholding and make adjustments to have your return come as close to neutral as possible.
If you expect a tax refund this year, knowing how to use it wisely is essential. According to a survey conducted by GOBankingRates, only 35% of respondents stated they did not expect to receive a tax refund. Just 9% said they expected to receive $3,000 or more, while an expected tax refund of $0.01-$500 was the most popular answer from 18% of respondents, followed by a refund of $501-$1,000 from 15% of respondents.
When survey respondents were asked what they planned to do with their refund, 35% said they did not expect to receive a refund. Of those who wish to receive a refund, 25% said they plan to put it in savings, 15% said they plan to pay off debt, and 13% said they plan to pay bills.
Here Are 5 Things You Should Avoid Doing With Your Tax Refund in 2024 (Photo from: East Kootenay News Online Weekly)
However, there are some things you should avoid doing with your tax refund. Here are five recommended things to avoid doing with your refund check:
1. Impulse Buys: One of the quickest ways to blow your tax refund is to spend it impulsively on random items. Expensive takeout, a new pair of shoes, or the latest electronic gadget can quickly eat up your refund. Plus, shopping without a plan can lead to a bad habit.
2. Luxurious Weekend Getaway or Other Travel: While most people could use a weekend getaway, if you have more important priorities for extra funds, such as paying off debt, you should not spend your tax refund on a five-star hotel room, a gourmet dinner with a view, and signature drinks by the pool.
3. Gambling: Think again if you think you will hit the jackpot by buying hundreds of dollars worth of tickets in your state’s next big lottery draw. According to mathematical experts, even though you may increase your odds of winning the jackpot somewhat by buying 100 tickets, there is still a very high probability you will not.
4. Down Payment on a Car: While you may have been eyeing a new car and think your tax refund is the perfect amount for a down payment, you should consider a little further ahead to the actual costs you will have to make once you finance the car. If you already have a functional vehicle that is paid off, why saddle yourself with more debt?
5. Sketchy Investments: Risky investments, like cryptocurrency or high-yield bonds, could be a better use of your tax refund. You might come out ahead, but the majority do not. The risk is just not worth it.
The best way to use a tax refund will depend on your specific financial situation. A financial expert suggests good options include:
- Paying down high-interest debt.
- Increasing your emergency savings.
- Adding to your retirement accounts.
- Setting the money aside for short-term goals/expenses.
- Adding to a 529 college plan if you have kids and want to help with future college expenses.
READ ALSO: Americans Retiring Early Is A Costly Mistake – Why A Million Won’t Go Far
