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Home / Filing Taxes / Worst Ways to Spend Your Tax Refund

Worst Ways to Spend Your Tax Refund

April 14, 2014 By Rebecca Lake

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crushed dollar bills

If you’re looking forward to getting a fat tax refund check this year, you need to think carefully about how you plan to spend it. While there are plenty of smart things you could do with the extra cash, like paying down liability or making some much-needed home improvements, it’s all too easy to let the money slip through your fingers. If you’re looking to make the most of your refund this tax season, here are some things you won’t want to do.

1. Use It to Finance Liability

If you’re thinking about using your tax money as a down payment for a new car, furniture or another large purchase, you might want to think again. Just because you’ve got enough cash to get your hands on whatever it is you want right now doesn’t mean you can afford it in the long run. If the payments are going to take a serious bite out of your budget, you’re probably better off hanging on to your refund and saving a little more until you can afford to buy it outright.

2. Blow It On a Dream Vacation

You work hard for your money and everyone needs a little time to recharge their batteries but spending your tax refund on a luxurious getaway will only give you a short-lived boost. If you’re buried under a mountain of liability or you’re living paycheck to paycheck, your financial problems will still be waiting for you when you come back to home sweet home. Unless your finances are in great shape, you should probably hold off on that dream vacation.

3. Gamble It Away

Whether you prefer lottery tickets, staking out the slot machines or hitting the racetrack, the odds of winning it big through gambling are pretty slim. Thinking you can count on Lady Luck to parlay your tax check into a major windfall is a surefire way to end up broke. If you’re comfortable taking a risk with your money, investing it in the stock market is a safer bet. Just be sure that you do your research beforehand to make sure you don’t end up backing the wrong horse.

4. Make Bad Loans

When you’ve got a little extra cash to play with it’s likely that a friend or family member will try to hit you up for a loan. Turning them down could turn the relationship sour but you could also run into trouble if you lend them the money and they don’t pay it back. When someone asks to borrow from you, it’s better to go ahead and call the money a gift instead of a loan, since there’s no guarantee you’ll see it again. If you’re not comfortable with giving away the cash, you’re better off keeping your tax refund to yourself.

5. Nickel and Dime It

The easiest way to make sure you squander your tax refund is to park it in your checking account and nibble away at it a little at a time. Spending $20 for lunch or $50 on a new pair of shoes may not seem like much but before you know it, your extra cushion of cash is gone. Moving the money into a separate savings account can help you keep from spending it all on nothing. Your refund will be earning a little interest and you’ll have time to think about the best way to put the money to work.

Most tax experts would agree that it’s better to not get a refund or owe anything to Uncle Sam at the end of the year but many Americans actually prefer to get money back at tax time.  If you normally count on snagging some extra cash when you file, avoiding these spending pitfalls can help you get the most bang for your buck.

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