Each year during tax season, millions of Americans eagerly await their refunds. And this year is no exception. An estimated 55% of filers are waiting to get their hands on the money the IRS owes them, reports financial company Self, and they’re already making plans for how to spend that cash. Here’s what those surveyed have in mind.
1. Paying off credit card bills
A good 44% of Americans think they’ll use their refunds to pay down existing debt. That’s a smart idea, seeing as how credit cards tend to charge notoriously high interest rates, and how too much credit card debt can damage your credit score.
The fact that 40% of Americans plan to use their tax refunds for food shopping is both surprising and alarming. Clearly, food is the sort of thing that should be a steady part of everyone’s budget — not the sort of thing that hinges on getting money back from the IRS. To be fair, though, it could be that some of those respondents who indicated their refunds would go toward food may be thinking higher-end products, as opposed to fridge and pantry staples.
Again, utilities should be included in everyone’s budget, so it’s a bit strange to see that 38% of Americans would use their refunds to pay the electric bill. Or is it? That statistic may actually speak volumes about the state of Americans’ finances — and not in a good way.
A good 36% of Americans plan to invest their tax refunds. That’s a smart way to put that money to work. But in an ideal world, we’d all be investing already, and not counting on a refund to do so.
For 36% of Americans, a refund spells vacation. That’s not a bad thing, assuming those who plan to spend that money on a getaway are first making sure they’re doing well in terms of savings and don’t have any unhealthy debt in their name.
7. Paying off holiday shopping
Many consumers go overboard during the holidays and wind up in debt. An estimated 35% of Americans say they’ll use their tax refunds to pay for the holiday purchases they made, and it’s those same filers who would be wise to submit their returns early — so they can get their refunds sooner and avoid racking up interest on items they shopped for in December.
8. Rent or mortgage payments
Once again, we have a spending category that shouldn’t be refund-dependent. But clearly, a large number of Americans are struggling to keep up with their housing costs, so much so that 31% expect to use their refunds to cover a mortgage or rent payment.
Don’t count on that refund
Clearly, Americans have put a lot of thought into how they’ll use their refunds. But if you’re doing the same, remember one thing: Tax refunds are by no means guaranteed. As such, you really shouldn’t be counting on one to pay your rent, buy food, pay the water bill, or contribute money to savings. Rather, you should get on a tighter, more efficient budget to ensure that your regular paycheck suffices in covering these and other key costs.
Remember, too, that a tax refund isn’t free money. Rather, it’s your money that you failed to collect as you earned it. While receiving that lump sum of cash may be nice, you’re generally better off getting a higher paycheck every month, so if your refund is huge this year, considering adjusting your withholding to put more money in your pocket sooner. That way, you won’t have to wait on a refund to cover your basic expenses.
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