It’s only natural to get excited about the gifts you’re planning to buy this holiday season. If you’re counting on your upcoming tax returns to foot part of that bill, though, you might be in for a rude awakening. Unfortunately, though, this kind of spending is all too normal in today’s economy.
Many Americans are already planning on how to spend their upcoming tax refunds. In fact, more than half of them already know exactly where that money is going to go – and it’s not going to be saved. The breakdown of those planning on using their refunds tends to vary a bit by demographics – Millennials and women are more likely to have a plan for their taxes, for example – but it does seem like many of those refund checks are already mentally being spent. Be careful on taking out short term loans to cover immediate Christmas and New Year expenses knowing that your dipping into your tax refunds to cover them. When taking out a loan, make sure to only try to cover necessities and leave the over indulging out.
Those in the world of finance have mixed feelings about this kind of spending plan. On one hand, many do say that it’s a good idea to have a plan for your tax returns. After all, prioritizing your spending is usually a great way to keep up with your financial goals. Most financial professionals would rather see Americans putting that money to work, though, especially when they take some time to look at how people will really be using those checks.
Only about twenty percent of Americans seem to be planning on saving their tax refunds. About forty-three percent plan on using the money to pay off their debts, while the remainder seem to be planning on spending that money on themselves. Tax time is a good time to pay off existing debt like small dollar loans, ex. payday loans or small personal loans. This way you eliminate a monthly expense. Again, that’s not necessarily bad – but when tax returns are up in the air, many people can start to make very dangerous decisions based on very limited information.
Most experts look at this kind of planning as dangerous because it encourages people to spend money they don’t actually have. It should come as no surprise that having this carrot dangling in the future has encouraged many individuals to start overspending in hopes that they’ll have more in the future.
Many people look at their tax returns and see a way to deal with their current issues. This, in turn, allows these individuals to make short-term decisions with the hope of a long-term payoff. Credit card balances tend to go up, for example, even when people won’t necessarily have the money in the future pay off the debt. All it takes is one unexpected bill between the holidays and tax refund day to throw off one’s finances.
There’s also the fact that many people don’t really know what kind of refund they’ll get this year. If anything has changed in your financial circumstances, for example, you might end up with a very different refund. You may also find yourself getting your refund much later this year than last year, especially as more anti-fraud measures are put into place by the government.
Don’t look at your tax return as free money. Instead, take this year as a chance to get out of your usual cycle of debt. You don’t have to plan on spending that money for your holiday budget, nor do you need a plan to spend every penny right now. Instead, plan ahead – earmark some of the money you’ll get this year as part of next year’s holiday budget.
If you really want to make plans for your tax refunds, your best bet is to talk to your tax professional early. He or she can help you make better year-end plans and set your realistic goals for next year. While buying presents is fun, making a sound financial plan can help you more in the year to come.
Remember, always borrow modestly and repay responsibly. Everyone splurges a little during the holiday season. People take out more loans and over extend themselves to enjoy the much anticipated Christmas holiday season. This is understandable. Just don’t over do it to the point your heading into your tax refund and its already spent. Build a little for next year and your that much ahead.