Five Dumb Ways To Spend Your Tax Refund

I filed my taxes this weekend, and like the majority of Americans I’ll be getting a refund from Uncle Sam. In 2012 the average tax refund was around $2900. You may remember that I’m not a fan of getting a big tax refund, and my refund this year is well below that average. Even still, I haven’t gotten a tax refund in a few years and it is exciting to consider the possibilities of what can be done with that money.

I could drone on and on about how you should pay down your debt, build up an emergency fund or invest your tax refund. But what fun is that?! Instead, let’s look at the dumbest ways to spend your refund check!

1. Throw a Party – Believe it or not, I had a friend who did this. He threw a huge party after getting his check and spent it all on kegs and bottles of liquor to throw a party

tax refund, dumb ways to spend money, spend tax refund

for just about everyone he knew. There are also unconfirmed rumors that he ended the night by going to a club and “making it rain” with $100 worth of dollar bills, but without photo evidence I don’t know that I believe him on that one. In any event, both he, and everyone at the party had an amazing time. But it’s probably the single dumbest thing I’ve ever seen anyone do with a tax refund!

2. Gamble – Any time I go to the casino I like to joke with my friends that I’m going to walk up to the roulette table and put all the money in my pockets on black. It’s close to a 50% bet, sounds like a good investment to me!

Better yet, my beloved Buffalo Sabres are sitting at 75:1 to win this years Stanley Cup and the Buffalo Bills are 100:1 to win next year’s Super Bowl! What better way to spend some extra money than by throwing it behind the hometown teams?? Maybe I could even save a few bucks for some Mega Millions tickets. The odds have to be in my favor eventually, right?!

3. Buy a new iPhone or iPad – This has to be the most common way people spend refund checks. If you can’t afford whatever your coveted electronic device is without the “windfall” from Uncle Sam, you shouldn’t go blowing your refund check on it. This behavior is a severe case of what finance writers love to refer to as “keeping up with the Joneses”.  Finally getting some money in your pocket isn’t a sign from above that you need to go out and spend it. Especially when that new iPad or iPhone will cost you even more once you start paying for the service plan that goes along with it.  I know Apple’s stock has been struggling lately, but it’s not up to you to spend all your money to help them out!

bmw-4-series-want4. Buy a car – Everyday on my way to work I hear the same car dealership commercial on the radio. “Bring your tax refund to us and we’ll double it towards the purchase of any car on our lot!” Awesome deal! I bring in a $1000 tax refund check and they’ll match it so I have $2000 to put down on a new car!

I guess they phrase it like that because “Bring in your tax refund and turn it into years of new debt!” doesn’t quite move as many cars off the lot. Again, if you can’t afford to buy a new car without the extra tax money then you shouldn’t buy it when you get that check in your hands. Taking that extra cash and turning it into a loan payment has to be one of the very worst ways to spend your tax refund.

5. A night out on the town – What better way to show your significant other that you car than by taking your refund check and treating them to dinner and drinks at the nicest restaurant in town? I’m sure my girlfriend would love it if I told her we were drinking, dining and getting a room at the Hotel Lafayette this weekend. Maybe we could even get the $500 bottle of Vega Sicilia ‘unico’ while we’re there!

Sure it would be great fun, and probably earn me some major points. But when that bill gets set on the table, will it really feel worth it? Probably not.

How to handle a tax refund

As you’ve probably figured out, treating your tax refund like it’s some generous bonus the government is giving you is the wrong way to go about it.

In reality that refund is money you should have had in your pockets all year long. If you actually had that money all year long there’s no way you would have blown in it on any of these things, so don’t do it now!

What are some of the dumbest ways you’ve heard of people spending their tax refunds?

Have you ever blown a refund check on anything you later came to regret?

Recommendation: Get yourself the largest refund possible by using TurboTax to file your taxes this year. Then, be smart with your refund and treat it like money you should have had all year long, not a surprise windfall.

 

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scroogeduck photo by sfbaywalk

 

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30 Responses to Five Dumb Ways To Spend Your Tax Refund

  1. My tax refund goes straight into my investment account. It’s a lot less fun than any of the ways you described. Which by the way, have all been done by friends of mine.

  2. Pauline says:

    In France it is the other way around, you pay in September 2013 your taxes of 2012. Many people don’t have the money by then so they borrow it… If I needed a car and knew about that car offer (like you expect black Friday to have a good deal if you need a computer) I would take it otherwise I don’t see the point. We have a month when people get paid double here, and the offers to make them spend as soon as they get the money are incredible. Pretty sure it is the best time of the year for sales.

  3. Michelle says:

    Our tax refund this year is going towards my student loans!

  4. I would disagree with #3. A windfall is exactly the time to make a purchase that wouldn’t normally be within your budget. With our tax return, we are buying a washer & dryer so we don’t have to pay $15/week at the laundromat ($600 set pays for itself in 40 weeks, with extra utility costs, call it 10 months), and a new computer to replace this 8 year old one that struggles with some of the more advanced tasks I give it.

    • But both of those can be classified as needs, or at the very least, practical. Totally different than running out to buy an iPad or a 72″ TV because you have some extra money coming your way.

  5. I used to do stupid stuff like this all of the time, now I try and get our taxes as close to 0 as possible. If we get anything back this year it’ll probably go to investing or saving for something.

    • I try to get mine as close to zero as well. This being my first year being able to deduct mortgage interest, etc.. I wasn’t sure how much I’d be affected so I’m ending up with a nice sized refund

  6. Mike says:

    Using mine (2900) to pay for my wedding in October. I get alot back because I am a grad student.

  7. Justin@TheFrugalPath says:

    The only thing worse than #4 is to lease the car. I had a co-worker do this, she was happy for about four months. Then she realized the payments were too much and became car poor.

  8. If I get a tax refund I just re-invest it right back into my RRSP’s as it’s not really found money to me.

  9. I agree with each of these. No need to splurge with a tax refund. Applying it to debt, or adding to savings, each makes more sense than partying or buying gadgets. Though if one takes a refund and adds it to a car fund it might be okay – as long as the fund is for a car that will be paid for in cash, and is one that is within one’s means completely.

  10. I will use my tax refund money to buy gold or silver coins as an investment.. There is great potential of these two precious metals to increase its value after few months from now.

  11. I once gambled my whole tax return on a roulette wheel, went black, came red. Morale of the story: I’m an idiot sometimes haha.

  12. If I’m getting a big refund I might take some and use it to buy something but it’s definitely not going to be more than half. I try to keep my refund to a minimum so I can invest the money throughout the year. Although that party sounds like it would have been a blast!

  13. Jose says:

    My tax refund is going to be 100% directed on debt. And on a particular debt that I made a mistake with last year (I paid it off and then got stupid and couldn’t resist that particular “empty” card). That one is an Amazon Points card. The stupid part is that after paying it off, I didn’t “bump it down” on Amazon and it remained the first payment choice. That became easier than changing a payment to a debit and in essence paying it cash. Before I knew it, a decent balance had built up. Fair warning to anyone considering an Amazon card :)

  14. Martin says:

    If I have a refund, I would definitely invest it. I need to invest every penny available. So my decision on this matter is quite easy. i will be doing my taxes this weekend, but I do not have all my papers yet from my other partnerships so I have to wait.

  15. I think a legitimate case can be made for number 3-5. Obviously it depends on where you are in your life. For years I used our tax refund to pay off consumer debt, now I have a little more wiggle room with what I can use it for. I think for the foreseeable future we will be using it to pay down the principal on our mortgage.

  16. We have friends who were supposed to go on vacation with us this year. The problem was that they had to wait for their tax return to pay for it. Needless to say, we had to go ahead and make our plans without them!

  17. Funny post. I have had several friends throw massive parties and “make it rain” at a club after getting their refunds. Fortunately, I have been pretty good with my tax refunds over the years. This year I had my biggest yet at $3800 and I used it to pay most of my student loan. What people fail to understand is that the government is giving back your money they borrowed from you interest free. So, in essence you are getting your money back.

  18. CF says:

    This year, my tax refund will be earmarked for paying for our fall vacation and paying my student loan. We save about 30-40% of our paycheques already so we probably won’t be giving the investment accounts any money from the refund.

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  20. Alexa says:

    I normally just put in mine in savings. I didn’t get back as much this year as I normally do so I just threw it in my checking account to use as a buffer.

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  22. Fernando R says:

    The list you put together looks very similar to a handful of people I know. I personally waited for my income tax refund to come in and paid off a credit card and now I’m debt free. Moving forward and learning every day more and more about personal finances.

  23. Jerry says:

    I have heard of some silly tax refund stories, but a party on an epic scale has to be the most outlandish. I agree with the point about not buying a new iPad or iPhone. Both will be cheaper in a few months anyway, then you should be able to have the money budgeted and; therefore, the item is actually within your realm of affordability.

  24. Integrator says:

    I’d love to be able to get a nice refund check one of these years. The extra dividend income that goes into the return means that we end up owing tax at the end of the year

  25. 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.

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