There’s nothing like a tax refund to give your finances an immediate shot in the arm. Depending on the size of the refund, it could be used to wipe out your credit card debt or help you build an emergency fund. Unfortunately, many people blow their refunds on stuff that does nothing to strengthen their finances, as if it’s a gift card that needs to be spent a certain way.
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The truth is, your tax refund is an opportunity to grow your wealth rather than a pass to spend money instead of investing it. When you complete your tax return and find that you are due a refund, consider it a reward for the hard work you put in during the previous year — and take advantage of it.
One of the smartest moves you can make is to put the money in a high-yield savings account. This is an especially good move right now, with banks and credit unions offering their highest annual percentage yields in years. Putting your tax refund into a savings account with a high APY means the money works for you, helping you build wealth for the future or cover emergency expenses when the need arrives.
Now that you know one of the smartest ways to use your tax refund, here below are several things you should never do with it. You can also check out a laundry list of other things people waste money on here.
Buy a Second Car You Don’t Need
It might be tempting to put your entire refund into a down payment on a second car you’ve always wanted. That’s a big mistake, though, if you don’t really need one.
Cars lose much of their value the moment you drive them off the lot. Putting yourself into a deeper financial hole with a monthly car payment — along with the cost of maintenance — can potentially set you back for years.
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Splurge on a Vacation
Unless the rest of your finances are in great shape, it’s likely a mistake to blow your tax refund on a pricey vacation. Look at it this way: If you invest your refund in an asset that can grow your money, the return you get might pay for a future vacation. The best part is, you still have the principle safely tucked away.
Spend It at a Casino
There’s a reason casinos make so much money — the odds are firmly in their favor. Hitting the slot machines or blackjack tables might be fun (at least for a while), but they can drain your tax refund in a hurry. There are much better ways to spend (or invest) your money.
Buy a New Wardrobe
Although you might be tired of looking at the same old clothes in your closet, a tax refund shouldn’t be your ticket to a new wardrobe. If you want to liven your wardrobe up with an affordable garment or two, use only a small part of your refund to pay for it.
Blowing the whole refund on new clothes can come back to haunt you when you need the money for something else. Instead, set aside a bit of money at a time for fun expenses, like new clothes, and work toward them.
Fill Your Home Up With Things You’ll Never Use
You might think you need a high-end coffee maker, new piece of exercise equipment or an expensive juicer. But if they just lie dormant after one or two uses, then spending your tax refund on them is a major waste.
It’s better to put your money somewhere it will grow so you can afford to buy the household items you really need.
Invest It in Something Risky
Some people look at tax refunds as free money they can afford to lose on a risky investment, but that’s the wrong way to look at it.
First of all, it’s not “free” money; it’s money you are due based on your earnings, tax withholdings and filing status. Putting it into a shaky investment is a mistake, when there are plenty of other investment options with less risk.
The bottom line is that using your tax refund to splurge on fun purchases or gambling typically isn’t your best bet. Resist the urge to spend on instant gratification, and opt to use your tax refund to improve your financial future.
Caitlyn Moorhead contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: 6 Things You Should Never Do With Your Tax Refund
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