According to an annual survey from Capital One Bank, this year’s average tax refund is expected to be $2,803. With such a nice chunk of change, not dreaming about exotic vacations and enormous televisions is nearly impossible.Pledges to pay down debt and boost your savings account are all well and good, but a quick injection of cash leads to temptation. Without careful management, that extra money can quickly disappear with nothing to show for it. If that scenario sounds all too familiar, consider these nine ways you’re wasting your tax refund without realizing it.
- Buying a New Car. You may curse your car for its lack of horsepower or weak air conditioning, but if it’s paid off and gets you from point A to point B, get as many miles as you can out of it. Buying a new car will saddle you with monthly payments for years to come, and increases the cost of insurance. Plus, you barely get any return value. The experts at Edmunds found after five years a new car is only worth 37 percent of what you paid for it at the dealership.
- Upgrading Unnecessarily. What’s the latest version of the iPhone? If you have no idea, that’s probably a good thing. One of the easiest ways to waste away a tax refund is upgrading your gadgets to the latest and greatest. It’s one thing to get a brand-new phone if you’re still on T9 texting. However, upgrading for a slightly brighter screen is a waste of money.
- Forgetting Frugal Ways. Living frugally requires extra effort, so it’s tempting to take a break when your tax windfall arrives. Not shopping sales and forgetting about coupons are the surest ways to nickel and dime your money away. To make sure you always have a coupon at the ready, peruse CouponSherpa.com for online coupons or download their free mobile app instant in-store savings.
- Impromptu Travel. When that refund shows up with winter still lingering, jetting off to a tropical locale is alluring. It’s best to resist this urge, as it’s well documented planning your trip in advance can save serious money. A recent report by CBS News found booking 49 days in advance provides the cheapest domestic flights, while affordable overseas travel is ideally booked 81 days in advance.
- Eating Out Unnecessarily. We all like to celebrate, and there’s nothing wrong with using a little bit of your refund to enjoy a nice dinner out. However, having that extra cushion makes it easy to let your guard down. Just because you have the money to stop brown-bagging your lunch at work doesn’t mean you should. When all that’s left of your extra cash is empty calories, you’ll be wishing you stuck with ham and cheese.
- Fashion Faux Pas. Much like upgrading gadgets, shopping for the latest designer looks adds a lot of extra expense. Seasonal fashions fade away fast, leaving you with a wardrobe you’ll never wear again. Not to say you can’t be stylish; these tips offer a more affordable way to keep up with current clothing trends.
- Neglecting Savings. There’s no two ways about it, saving money is boring. While having a solid savings account might not turn heads like a sports car, neglecting your reserves can hurt you in the long run. Unexpected expenses can come out of nowhere, and if you have the cash on hand you won’t have to deal with high interest rates from your credit card. Check out this list from Forbes to find some of this year’s best savings account rates.
- Letting it Ride. It’s not gambling if you know you’re going to win, right? When you wind up with money you weren’t expecting, it never hurts as much to lose it. This makes it way easier to play a few high-stakes hands of blackjack or pick up Powerball tickets with your refund. The rare case where you cash in keeps temptation alive, but the house is ultimately going to take your money in the end.
- Loaning it Out. Nothing brings around fairweather friends like an influx of cash. It can be tempting to loan money to a friend who’s fallen on hard times, but this is rarely a wise investment. Most of the time these personal loans don’t include interest, and are paid back at a painstakingly slow rate. That is, if they pay you back at all.
The preceding is a guest post from Andrea Woroch of Kinoli, Inc.
Great post! It is so hard to have the willpower and determination to pay off debt or save the refund yet it makes much sense financially. To be realistic though, even if we save or use wisely a bigger portion of the return that’s wtill a step in the right direction.
Good post. Forgetting frugal ways is my weakness at times. Especially when there suddenly is a tax refund or other cash from something unexpected. I have to always remind myself, that regardless of where I got the money, I should treat it the same as I treat my paychecks.
Nice, I think I have a few people I need to send this to before they get their return back! I know for us it can be tough because we have a tendency to be less efficient with ‘found money’. We sometimes end up doing something fun when we have money but I always feel better if we have been sticking with our spending plan. This year, returns will go to pay off the house! Hopefully that will be done in a year or two!
Thanks for the comments everyone!
Great post. It is just natural that people are never satisfied with what they have. They always want better stuffs to satisfy them. It is very ironic when I heard my friend is getting their tax return and spending it right away on something they don’t need while they have a big chunk of school debt to pay off.
Good post! I wrote about something somewhat similar today. When I was in debt I would generally use it to pay it off quicker and then moved to saving the big chunk of it. We have since switched to trying to get it as close to $0 as possible. This year we got a whopping $40 from the Feds, so I may just take my wife out to dinner. ;)
My refund was tiny, but I was still really excited to put it in my savings account. To make the idea of depositing my refund a little sexier, I wrote down my current balance, simply added my refund amount and stared at the new number. Just seeing the increase in savings made me smile.
-Christian L. @ Smart Military Money