While conventional wisdom suggests that an overly large tax refund isn’t ideal since you’ve been giving the government an interest-free loan, many people still eagerly anticipate getting a big refund every year. Thanks, in large part, to their dreams about how they are going to spend it, because in their mind, it’s free money.
There is a lot of marketing done to perpetuate that belief, often to further the idea the best use for your refund is to spend it. Don’t forget — it’s not really free money. You are being returned money that you earned because you over-estimated your taxes.
Drive Time put together a nice infographic on how Americans will spend their refund and broke it down by gender too. I liked seeing that paying down debt and savings were the top two choices. It’s fine to spend money on something you enjoy, just make sure first that you’re on track with your savings goals, emergency fund and don’t create new debt by buying something or taking a vacation that your refund doesn’t cover.
If you’re receiving a tax refund this year — how do/did you plan to spend it?
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SHANNON RYAN, CFP®
We will probably just send our refund back on April 15th when I owe my first installment of quarterly taxes.