It’s one of the few times when we look forward to tax-related tasks, and when it comes to saving versus splurging, CNBC reports that we have a tendency to indulge this time of year. The IRS reports that the average refund is $3,116, which is a good amount of change, whether you want to pay some bills, save, or buy something nice.
MIT Sloan School of Management professor Jonathan Parker says there are plenty of unnecessary (but fun) expenses in households who report in a survey that they plan to save money. That’s not to say these households aren’t saving part of their refund, but it also seems too tempting to get a big check and not spend at least part of it on yourself or your family.
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Edward Jones, a financial services company, also surveyed refund recipients and found that only 8 percent of people admit to spending their refund on a fun but unnecessary gift for themselves (key word here is “admit”) .
Just over half, 52 percent, said the refunds went toward necessities like household expenses or paying down debt. Another 30 percent say they plan to save, 8 percent want to invest it, and only 2 percent weren’t yet sure how they would spend their windfall.
Some people even plan expensive events like weddings during tax return season. In 2015, a couple from Portland, Oregon planned their destination wedding in Jamaica in early May because they knew their friends and family would be flush with tax refunds at that time of year. This clever planning paid off, as most of the guests accepted and spent Uncle Sam’s refund on tropical drinks, souvenirs and, of course, wedding gifts.
Get the most out of your refund
There’s nothing wrong with indulging, especially if you set aside just a small percentage of your refund for something fun. However, those who are really struggling to save or invest can try some strategies to improve fiscal responsibility.
For example, the IRS offers direct deposit of refund checks, and all you need to provide is the bank name, account number, and routing number. Choose an account you don’t check regularly or don’t have access to, or open a new savings account and opt out of checks or debit cards, and have your refund transferred to this account.
CNN Money reports that 80 percent of taxpayers get a refund, which means most of us are probably facing the same dilemma right now. No matter how small or large your refund is, how should you spend it? The majority of refund recipients (84 percent) earn less than $50,000 per year, so a significant refund can have a big impact on paying down debt, saving or investing. Make the most of your refund this year and plan where every dollar will go.