It’s one of the few times we look forward to tax-related tasks, and when it comes to saving versus splurging, CNBC reports that we have a tendency to treat ourselves this time of year. The IRS reports that the average refund is $3,116, which is a good chunk of change whether you want to pay off some bills, save or get yourself something nice.
MIT Sloan School of Management Professor Jonathan Parker says that there’s a lot of needless (but fun) spending happening in households reporting in a survey that they plan to save the money. That’s not to say that 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 family.
Helping the Economy Out
Edward Jones, a financial services company, also has polled those getting refunds and discovered that only 8 percent of people admit to spending their refund on a fun but unnecessary treat for themselves (the key word here is “admit”).
Just over half, 52 percent, said refunds were earmarked for necessities such as household expenses or paying off debt. Another 30 percent say they plan to save, 8 percent want to invest it and just 2 percent weren’t sure yet how they would spend their windfall.
Some people even plan costly events like weddings around tax refund season. In 2015, a couple from Portland, Oregon, planned their destination wedding in Jamaica in early May because they knew friends and family would be flush with tax refunds that time of year. This savvy planning paid off, as the majority of their invitees accepted and spent Uncle Sam’s refund on tropical drinks, souvenirs and of course wedding gifts.
Make More of Your Refund
There’s nothing wrong with treating yourself, especially if you put aside just a small percentage of your refund for something fun. However, those who really struggle with saving or investing 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 regularly check or have access to, or open a new savings account and opt out of getting checks or debit cards, and have your refund routed to this account.
CNN Money reports that 80 percent of tax filers get a refund, which means most of us are likely facing the same conundrum right now. Regardless of how small or big your refund, how should you spend it? The majority of those getting a refund (84 percent) make less than $50,000 per year, so a significant refund can make a big impact on paying down debt, saving or investing. Make the most of your refund this year and map out where each dollar will go.
Jen Stott is a writer and blogger, and works as the Content Director at Be Locally SEO in Salt Lake City, Utah.