How Not To Waste Your Tax Refund Money

So you’d done the right thing and filed your tax return early. Good for you! As a reward, your tax refund check from the IRS has arrived in your mailbox. With the stock market losses and all kinds of Obama stimulus goodies, the average federal tax refund amount for 2009 will probably approach or even exceed $3,000. It’s going to be hard not to get excited about this, especially after the difficult times that we have experienced for the past couple of years. People have felt deprived; spending this “windfall” can surely make them feel good again.

But that giddy feeling will soon meet the still hard reality; you will have to decide what to do with the money. For some reasons, a check from Uncle Sam often makes people feel it’s free and they didn’t work for it. They tend to forget that this is not a windfall at all, but is actually a part of their working income. It’s not extra! And it should have been in your pocket to begin with. Understanding this will help making the decision of not to waste a bit easier.

How to spend the money should not be the first thing you think about with the tax refund. As I discussed in one of my other blogs on this topic, When You Get That Tax Refund, adjusting your W-4 withholding immediately, paying off as much high-interest debt as possible, building or rebuilding your emergency fund, boosting your retirement funds, and establishing or improving college savings should be your priorities. These few steps are sure-fire solutions for preventing waste and strengthening your current and future financial conditions.

If you are one of the wise and lucky few who have gotten them under your belt, there are still more ways to stop yourself from wasting away most or all of this chunk of dough:

• Put the money out of sight, so it’s mostly out of your mind. Immediately deposit the check in your savings account. You may withdraw a smaller amount later for spending if you really need to ease your feeling of deprivation, which itself is a recipe for overspending. This way, when you have smaller slices to eat, you are less likely to blow the whole pie.

• Ignore the big-ticket item “sales”. Every year, advertisements for large screen TV’s, fancy new cars and exciting cruise vacations are timed perfectly to coincide with the tax refund season. They are tempting with seemingly “great discounts”; and you know you have a few thousand newfound bucks to spare. But think before you pluck out your wallet, or you’ll end up with another piece of expensive toys that will be collecting dust in a few days and a big hole in your pocket.

• Make it harder to shop if you must. The Internet has become a huge source of temptation to spend. So delete bookmarks for your favorite shopping sites, and take yourself off their e-mail lists while you are at it. Have you signed up for the so-called “ one-click ordering” or “one click-checkout” on merchant sites such as Amazon.com? Disable it. Adding just a few steps to the purchase process makes people less likely to follow through.

• Return the refund to the IRS and prepay your 2010 taxes. I know this directly contradicts with my principle and provides a free loan for a whole year to Uncle Sam, but these days your savings account gives almost nothing in yields anyway. Fulfilling your honorable civil duty a year early is not such a bad idea, and at least better than wasting your refund money away.

If  past financial turmoil and economic downturns have taught us anything, it is we should learn to be thrifty and frugal. Tragedy and hardship can strike anytime, so save and invest whenever you can, for the sake of yourself and your family alike. Your tax refund this year provides you with an opportunity to get a head start to achieve financial security and stability. Don’t squander it.