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
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!
4. 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.
scroogeduck photo by sfbaywalk