The Worst Ways to Spend Your Tax Refund

If you haven’t gotten your tax refund yet, it’s not too late to put together a smart plan for spending (or better yet, saving) that money.  If the thought of trying to decide how to put that cash to a good use has you overwhelmed, however, start by getting familiar with the ways you shouldn’t spend the funds.  Each item on this list of no-no’s is more common than you think.

Gambling

I won’t use this article as a sermon on the perils of gambling.  I will, however, remind you that your tax refund is YOUR money.  You earned it, and the government is just giving it back.  If you are not the type to faithfully take a large percentage of each week’s paycheck and bet it all on black, it would be out of character to do the same with your annual refund check.  If risk is your cup of tea, look up a certified financial planner that can guide you toward some investments with potentially higher returns.  Do not, however, head to the slots.  (It won’t take as long to burn through $1,000 in quarters as you think.)

Loans

Even riskier than the poorly-played poker hand is the handout to a friend or relative.  There is a reason that small claims courts and reality TV cases exist, and that reason is usually personal loans.  Forget for a moment that you may never get the money back, loaning out money can cause undue stress on your existing relationships.  Unless you can call the money a “gift” and expect to never see it again (and be OK with that), keep your cash to yourself.

Risky Investing

With many still reeling from the stock market’s last plunges, many tax payers are eyeballing the option of taking their investing matters into their own hands.  If handled well, it is possible to earn money by buying into a start-up or franchise.  If not properly researched and done with care, however, you could find yourself owning one half of a bleeding business, complete with legal troubles and difficult-to-dump inventory.  Assuming that you’re dead set on getting into a ground floor business opportunity, check around and never make the decision overnight. (And for Pete’s sake, NEVER announce that you have money to invest.  Shady opportunities just happen to pop up whenever this happens.  Make sure you search out all possibilities for yourself.)

Down Payments for Items You Can’t Afford

Every “Buy Here, Pay Here” car lot is drooling over this year’s crop of tax refunds.  They know that cash in hand drives people to buy things they rarely need, and most likely can’t afford.  If you need a vehicle to get to work, a new sofa to enjoy your family room, or a set of snow tires for your ride, we understand.  A tax return can get you there quickly, and there are many sales going on right now to help your refund go a bit further.

If you are easily tempted, however, aren’t sure that you need anything new in your life, and are just window-shopping for the heck of it, BEWARE!  You may find yourself talked into a purchase you won’t just regret, you also may not be able to keep making payments on.  Be practical with any major purchase you make with your return, and stay away from businesses that try to “help” you get a better bargain than what you feel you’re entitled to.

These are just a few of the most common ways I see people throwing away their refund money. Do you have examples of other ways a tax refund should NOT be spent?

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Comments

  1. says

    This is a good start to the list of things that you SHOULDN’T do with your tax refund – Here’s a suggestion about what you SHOULD do with it – Pay Down Your Debt. It may seem like a very unglamorous way to spend that newly found cash, but by paying off a large chunk of your debt, you’ll be freeing up some more expendable cash each month by having a smaller balance to pay off. Maybe this year’s tax refund can even help you get debt free…Either way, think about how nice it will be to have extra cash in your pocket every month, instead of waiting for the tax man to come once a year. Just my ‘two cents’.

  2. says

    I agree that it’s wise to do something smart with the cash. You can never go wrong with paying down that debt! Thanks for the comments, everyone ;)

  3. says

    Hi all,

    I don’t have some more examples to share, but yes I can share some effective ways where you can put this tax refunded money.
    One should invest this tax refunded money in avenues from where he can get more return on investments, likes of investing in Gold, commodities, real estate etc. These are some potential avenues which will give you increased returns in coming time.

    Nice post!!

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