A few years ago, a friend of mine lent money to his adult children so they could go on a trip. On their own, neither of them could afford the trip but were banking on getting a tax refund. So off they went. Big mistake! They had “spent” their tax refund even before getting it. The sad thing is they got their refunds a few months later but never paid my friend back. I’m sure other expenses came up and paying their dad back was not a priority. But I digress since that’s not the point of my story.
I have seen so many people commit this costly mistake, and not just with tax refunds, but also work bonuses, an inheritance or anything that’s technically not “in their hands” or pockets yet. Please, please don’t do that.
This time of the year is critical, when some of us start getting that extra cash in our bank accounts or in the mail. It’s a windfall that needs to be used wisely.
There are a few things I don’t want you to spend your tax refund on, however tempting it may be:
- An extravagant vacation
- An upgrade to new appliances
- An upgrade or revamp of your wardrobe
- Purchase or lease of a new car.
- Purchase of jewelry or other luxury items
Focus on these “needs” instead of the “wants” above:
- Start or beef up your savings account.
- Start an emergency fund of at least three to six months’ worth of living expenses.
- Pay off debt.
- Start a Roth IRA.
- Undertake a necessary home improvement or car repair.
How are you putting your tax refund to good use this year?