6. Splurge on a Luxury Purchase
Using a refund check to splurge on a purchase, such as a TV or shoes, was also a popular choice for 4 percent of respondents to the GOBankingRates survey. However, Sullivan recommended taking some time to plan the most effective way to use tax refund money. “If you opt for a big-ticket purchase, it should be something that works within your overall budget,” he said.
“While it may feel like free money, a tax refund is actually the government repaying you for an interest-free loan,” said Sullivan. “It’s money you earned, and should be used as responsibly as any other funds. Don’t consider your refund a separate bucket for free spending.”
When it comes to splurging on luxury purchases, it’s important to develop good fiscal habits rather than bad, said Pauline Paquin, founder of Reachfinancialindependence.com. “Blowing the money on stuff you don’t really need — nights out, shoes — will condition yourself to thinking that when a windfall happens, the money should disappear as soon as possible,” she said. “That is a terrible idea.”