I was talking recently with a friend of mine and he was telling how excited he was to spend his tax return on a new TV. Immediately, I gave myself a face palm. No! Don’t go out and spend your tax return!
Sometimes, I feel like people think that their tax return is free money from the government. IT ISN’T! This is money that was yours in the first place, the government just took too much of it during the year.
Splurging your tax return is just one bad example of what NOT to do with your tax return this year. Here, I have compiled ten other ways you should avoid spending your tax return this year.
1- Hitting the casino
You’d be surprised at how many Americans do this. Instead of investing their ta return, they throw their own money down the drain. This has never made sense to me and never will. Avoid the slot machines!
2- Upgrading to a better car
If your car is running fine, why waste your money on another car purchase? Owning a car is expensive as it is. Don’t blow it on something that already works. Contentment is key for this area of personal finance. We all want “better” or “cooler” cars but we sacrifice those types of purchases for the sake of sound personal finance. I advice you to avoid this blunder.
3- Expensive clothes
I know one is hard for me to avoid, considering I live the mecca of fashion (LA). For this temptation I just go back to my old saying “are my clothes good enough?” If they are, why waste money on nicer clothes? For example, I have two pairs of jeans and a pair of dockers, that’s it! I think if you organize your closet and live a minimalist lifestyle, you’d be more relaxed and stress out less about what you’re wearing. Unfortunately, this consumerism disease comes down to the need to impress people. Until you conquer that struggle, none of what I’m saying will help you…
4- Risky investments
Can you say the latest fad to invest in gold and silver? Be forewarned: it’s not an if the market will slap you, it’s WHEN. Don’t put your money in individual investments. Always invest in broad based index funds and ETF’s. Protect yourself, take your refund and invest it in low risk investments. Remember, the slow and steady wins the race. I don’t know about you, but I’d rather live comfortably than be broke at retirement due to a high risk investment decision that went belly up.
5- Hotel or restaurant outing at the most expensive place in town
Ok, let’s think about this one. If your tax refund was your money in the first place, would you have dwindled your money away at an expensive hotel or restaurant on your normal budget? Hmm, most likely no. Live below your means and invest regularly, it’s the NEW American way!
So, now I’ve shared 5 stupid ways to spend your tax return, you might be asking “well, what should I do with it?” First and foremost, you should pay off debt immediately. The goal to become debt free should be a priority for you. If you don’t have any debt, it’s critical that you boost your emergency fund. I recommend 6 months worth of expenses. The last thing you should do with your tax refund is invest it in low cost options like your Roth-IRA or 401k. Invest, invest, invest. Did I mention invest? If you are 21 and reading this, start saving NOW. If you are 40, start saving NOW! Time is truly of the essence when it comes to retirement. The math is simple. The sooner you start investing, the sooner you can retire. My goal is to retire at 60 or earlier. Your goal might be different. Whatever it is, start investing today.
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