The Biggest Mistake People Make With Their Tax Refunds and How to Avoid It

Monica Jackson
Published Jun 6, 2024

The Biggest Mistake People Make With Their Tax Refunds and How to Avoid It

Tax season is a time of anticipation for many Americans, with the prospect of a tax refund offering a financial boost.

However, the excitement can often lead to poor financial decisions.

The biggest mistake people make with their tax refunds is spending the money impulsively. Here's why it's crucial to avoid this pitfall and how you can make the most of your refund.

Understanding the Impact of Impulse Spending

Impulse spending occurs when you make purchases on a whim, often without considering the long-term impact on your finances.

According to a 2023 survey by the National Retail Federation, the average American plans to spend their tax refund on everyday expenses, vacations, and major purchases like electronics or furniture.

While it might feel rewarding to indulge, this approach can undermine your financial stability.

The Smart Move: Saving and Investing

A better strategy for your tax refund is to save or invest it.

According to the IRS, the average tax refund in 2022 was about $3,039.

Imagine the financial security this amount could provide if put into a savings account, emergency fund, or retirement account.

Consider these options:

  1. Emergency Fund: Financial experts recommend having three to six months' worth of living expenses saved. This fund can protect you against unexpected events like job loss or medical emergencies.
  2. Retirement Accounts: Contributing to an IRA or 401(k) can enhance your future financial security. Compound interest means that even a small contribution now can grow significantly over time.

Reducing Debt

Using your tax refund to pay down debt is another financially savvy move.

According to Experian, the average American carried $96,371 in debt in 2021.

Paying off high-interest debt, like credit cards, can save you a substantial amount in interest payments and improve your credit score.

Government Assistance and Benefits

Several government programs can stretch the value of your tax refund further.

For instance, the Low Income Home Energy Assistance Program (LIHEAP) helps with energy costs, allowing you to allocate your refund to other pressing needs.

Additionally, the Supplemental Nutrition Assistance Program (SNAP) can assist with food expenses, ensuring your refund isn't spent on essentials.

Planning for the Future

Creating a budget or financial plan can help you manage your tax refund effectively.

Consider working with a financial advisor to develop a plan tailored to your goals.

This proactive approach can help you avoid the common mistake of spending your refund impulsively and instead, use it to build a more secure financial future.


While it might be tempting to splurge with your tax refund, taking a more strategic approach can have lasting benefits.

Whether you save, invest, reduce debt, or take advantage of government programs, making thoughtful decisions with your refund can significantly improve your financial health.

Avoid the common mistake of impulse spending and make your tax refund work for you in the long run.

Don't Miss:

Related Articles

The State By State Guide to Unclaimed Assets...

Unclaimed assets can be a hidden treasure waiting for you. The challenge is each state in the United States operates an Unclaimed Property Program to safeguard these assets until they can be returned to their owners. ...

Do You Have Unclaimed Funds? Here's How To Find Out...

Everyone can relate to having a never-ending list of unfinished tasks. Finding out if you have unclaimed funds might be one of those things. It's a relief to learn that finding out if you have unclaimed fu...

Unclaimed Money: Here's How to Find and Reclaim What's Been Lost...

  When you think of lost money, the first thing that probably comes to mind is a treasure map and X marking the spot. Unfortunately, finding unclaimed money in real life is a bit more complicated ...

Ways You Can Use Unclaimed Funds for Personal Financial Wellness or Business Development...

Millions of dollars in unclaimed funds are held in government coffers across the US. Yet, some people remain unaware that they have money waiting for them, while others simply don...

FAQs About Unclaimed Assets and Money...

Being a savvy consumer means being in the know about unclaimed assets and money. You might have questions about how to find and access this money – but don’t worry; we’ve got you covered! Here are some FAQs about ...

The Government Urges Americans to Claim Their Money...

A couple of weeks ago, news broke about the federal government releasing information about millions of Americans who have yet to claim their stimulus checks. Most people just believed that this was a sitting adminis...