If you’re one of the many Americans who receives a tax refund during the tax season, one of the many questions that plague your existence is “What do I do with this money?”. For some, receiving a tax refund is like getting “free money”. But for others, the tax refund serves as a cushion to their normal budgets and spending plans.
One of the key components that exist when evaluating your tax refund and the decisions to be made is the reviewing of your past behaviors towards the tax refund. Are you one of those “big spenders” who receive your refund and gives it away to the economy as soon as it hits your bank account? Or are you one of those “big spenders” that makes long-term debt decisions with your refund check?
Many Americans frankly do not understand how taxes work. For those who believe that maximizing their refund is an amount “owed” to them by the government, the excitement of their tax refund can become an anxious affair. As refund checks are being deposited into bank accounts, the spending trends increase resulting in mass debt and poor decision making. In order to resolve these problems prior decisions and behavior patterns must be evaluated. Prior behaviors towards your tax refund helps you to determine the current decisions that you can make with your refund check.
For example, among the lower-income population, many receivers of tax refunds never sit and think about the best options available for their refund check. The excitement usually takes over their rationale and they immediately spend every last cent received prior to the tax season ending. This behavior carries forward through many years of receiving a refund check until they leave the earth all together.
As a tax professional, one of the hardest events when dealing with clients is explaining to them the actual financial options there are available with their refund checks. Imagine, for five simple years, you’ve been receiving on average $5k in tax refunds and you’ve been putting that money into a savings or CD account. Over the five year period, you will have saved $25K (not including interest). Now this money can be used to make life changing decisions such as purchasing a home, paying down debt, or taking a wonderful family vacation abroad.
As more and more Americans become aware of their tax refunds and their spending habits, my goal as a tax professional is to steer their decision making from “spending” to “saving”. By all means, you can spend a few dollars on yourself and your children, but there are no excuses for spending anywhere from $3 – $5K in a two week period. Just imagine, the tax refund amount is not an amount that you normally make in such a short period of time, so why not teach yourself patience and learn more about money management with the refund check that you receive?
Overall, as this tax period comes to an end, I hope that more and more families take into consideration the benefits of saving. Saving can be enlightening experience. Not only will it make you more comfortable with having such large sums of money at your disposal, but it will brighten the idea of future possibilities for you and your family.
So, I must ask: “What are you going to do with all that money?”