Along with savings on tax software and commercials promising the biggest refunds, tax season also offers many opportunities to spend that money, from furniture and electronics sales to car and plane-ticket deals. According to research by economists Christian Broda and Jonathan Parker, many households take advantage of these discounts, spending their refunds even if they had originally intended to save them.
But with a little planning, your refund can go a lot farther than a set of golf clubs, a few new outfits or a weekend away. Take this quiz to get tips from Philip Olson, a certified financial planner at The Art of Finance in Austin, Texas, on what to do with your refund so you can work toward your financial goals.
Bonus Tips for All Taxpayers
No matter what your financial situation, make a plan for your refund when you file your return—not when the check or direct deposit from the IRS arrives. “Once it’s in your hand, it’s amazing how fast money goes,” says Olson.
And if your refund is in the thousands, consider talking to your employer or accountant about ways to make it smaller next year. “If you have a job that gives you a W-2, your employer withholds some taxes, and they make some assumptions about how much to withhold,” Olson explains. “But those assumptions aren’t always right. So while emotionally, a refund feels like free money, it’s really just your money that you didn’t get to touch for a whole year. A tiny refund is OK, but a big refund should never be your goal.”
The HR or accounting departments at your company may be able to adjust the amount withheld to minimize your refund (and maximize the funds available to you to save or invest). If you’re self-employed, ask your accountant or take a closer look at your own tax calculations.
When it comes to financial goals, saving money usually tops the list. See how much you could save on insurance thanks to discounts from GEICO.
Next article: What Happens if You’re a Victim of Tax Return Fraud
By Kristen Koch
Originally published March 2016.