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5 Terrible Ways to Spend a Tax Refund

If you’ve been in the market for a new television in the past few years, you’ve probably heard that the best sales are offered in the days leading up to the Super Bowl.

That’s somewhat surprising when you consider the hype about electronics sales on Black Friday and Cyber Monday, only 10 weeks prior.

What was even more surprising was the news out of this year’s Super Bowl television deals: that sales numbers would be greatly affected by the delay in processing tax refunds for many Americans due to new identity theft protection strategies.

Think it’s crazy to have a television purchase depend on your tax refund?

Think again. Because buying the hottest new TV isn’t the craziest way people spend their refunds.

The IRS reports that the average tax refund – about 75% of Americans get money back at tax time – is just under $3,000.

While most of us will utilize that refund on responsible spending – 27% will pay down credit card debt, while 25% will put it in a savings account – some will go off the rails, splurging on vacations, luxury goods, and, yes, even tattoos.

You and I both know that tax refunds aren’t the same as lottery winnings. That’s why we put together our list of five ways not to spend your tax refund (if you’re getting one!):

Financing New Debt

A $3,000 could be a nice down payment on that car, boat or ATV you’ve been wanting, right? If you’re using your refund to finance something you couldn’t afford without the refund, you’re likely going to be in trouble when the monthly payments that you financed come due. And, even if you’re buying that item outright with no financing, you need to take into account any additional insurance and maintenance costs that you’ll be responsible once that refund check is spent.

Gambling

Wouldn’t it be great to turn $3,000 into $6,000? And what are you really risking – that refund is like a bonus, right? The multi-billion dollar gambling market is that flush for a reason, so heading to Las Vegas or Atlantic City to pour your refund into the hands of a casino might sound fun, but it’s not likely to help your financial situation now or in the future.

Plus we have much better strategies – ones that don’t involve lining up cherries on a slot machine – to help you turn $3,000 into $6,000.

A Shopping Spree

While a tax refund might feel like a bonus, it’s really part of your income that you’ve been lending to the government (interest-free!) all year long. If you start thinking about that money as part of your monthly income, you might reconsider purchasing the Louis Vuitton bag or Apple Watch that blows twelve months of extra income in one shot.

Savings

This is a tricky one, because it seems so responsible! If you do not yet have an emergency savings account, putting your tax refund into a low-yield savings account is a great idea. Living paycheck to paycheck is stressful and expensive when the inevitable extra expenses that life throws at you arrive, so having that cushion is valuable.

Once you’ve got an emergency fund, though, you need to consider how that money can work for you long-term. Now’s a great time to look into maxing out your retirement savings or another smart long-term investment vehicle.

Buying Individual Stocks

Despite the thrill of what seems like more responsible gambling – will it go up? Will it go down?! – buying individual stocks is not a good idea as an investment strategy. Over time, individual investors have not been able to duplicate the market’s overall returns, or that of a professional day trader.

The best plan for your tax refund? Talk to your financial advisor about your long-term goals and short-term needs. They will be able to assess your situation and let you know what investment vehicles are smartest for you and your family…and maybe even identify a little splurge or two!

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Best wishes,

Jarrod

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