Receiving your tax refund check at the beginning of the year may seem like a big, unexpected payday to many taxpayers, which they see as expendable income. With the extra cash now sitting in your checking account, it may be hard for some to control the urge to splurge or justify buying that new computer and pair of shoes they really don’t need. Not that you shouldn’t treat yourself once in a while, but don’t go overboard, leaving yourself in a finical doozy. Here are four things you should not do with your tax return:
1. Material Overload
After receiving your tax refund, many people find it easy to treat themselves to a well-earned luxury item, and they should feel confident in doing so, but don’t go overboard on the high priced ticket items. Before allocating any of your tax return money to go towards things you don’t need, stop and take a look at your finances. Would you rather have the instant gratification when you buy that new iPhone, or would choosing to remove the burden of that credit card payment that you never seem to get rid of have a greater impact month after month?
Many people make the mistake of not setting limits to the material things they buy with their tax refunds. They know the money is there so they can justify spending $50 on a new shirt or $100 on a new pair of headphones, but those items can quickly add up, leaving someone scratching their head as they try to figure out where their refund went. We’ve all been there. Instead, give yourself an allowance to spend on yourself so you can determine what you want and how much of your refund it will take. Then, do the smart thing with your leftover return and put it into savings or consult with a professional to see your options.
Speak to any successful and well-off individual about gambling, and they will tell you that it isn’t worth the risk. Gambling can be highly addictive and dangerous, especially if the person is relying on winning to make ends meet. The odds are stacked against the players and the ratio of reward to loss is very low. Taking your tax refund to the casino is the worst thing you can do with your well-earned cash. It only takes minutes for you to lose everything and there is no way of getting it back.
3. Checking Account
In the age of technological advancement, we are now able to receive our tax refunds in the form of a direct deposit within 7-21 days after filing. Some people leave the money in their account, thinking they won’t touch it until a rainy day comes along, but often that isn’t the case. Regardless of how hard you might try, knowing you have the money in your account will make it easy to justify spending money on things you don’t need or splurging on a nice dinner when you should be eating at home. You’re swiping your debit card so you don’t see the money slowly disappear like you would if you held cash in your hands. Take the money out of your account and divide it into emergency funds and savings accounts before you just start spending. This will make the reality of how much money you have more evident. It will make you think twice before swiping your debit card.
4. Living Beyond your Means
With a large expendable amount of money at your fingertips, it may be easy to justify using your tax refund as a downpayment on a car you usually wouldn’t be able to afford, but stop and think before you sign on that dotted line. A downpayment is just that, a payment. You will still owe money on the car once your tax refund is gone. Can you really afford the payment? Gas every week? Keep up with the maintenance of the car? What if it breaks down, can you pay to have it fixed? You should be asking all of these questions before you decide on a car to purchase. Money can evaporate as quickly as water and you don’t want to be stuck in a drought after it’s all gone.
Your tax return is money you’ve already earned; its called a return for a reason, so treat it like you would any other paycheck! If you’re looking for inspiration or tips on how to make smart money moves when it comes to your tax refund, check out our other blogs on how to grow your tax refund and visit Helix by Lead Bank’s main site to learn more on smart leading practices and ways we can help when you need it most.