Stop Yourself from Wasting Your Tax Refund

This time of year is when many anxiously await their tax refund. While it isn't actually "found" money, many act as though it is, spending it all at once on frivolous things that they don't really need. Before you take your tax refund and blow it all on some impulse buy, or on some "fun" thing that will do nothing to advance your financial situation, consider holding off.

Dividing up Your Tax Refund Money

One of the things you can do to avoid wasting your tax refund money is to divide it up. Separate the refund into three parts. The largest part -- at least 3/4 of your refund -- should go into a high-yield savings account. The remaining money should be divided between you and your spouse. For example, if you received a $2,000 tax refund, you would put $1,500 of it in savings. The other $500 would be divided between you and your spouse, so you would each get $250. If you want to share with your kids, you can further divide the $500. For example, if there are five of you in the family, you could each get $100.

This money is extra money that you and your spouse can spend on whatever you want. One of the reasons that people are prone to waste tax refund money is that it is available and, especially in the current economic times, they are feeling deprived. Having a little "fun" money that you can spend on whatever you want can reduce those feelings of deprivation.

Now that you have your own allowance to spend, it's time to turn your attention to your tax refund money sitting in the savings account. Prioritize your financial goals and decide where the money will be most useful. Perhaps it will best serve your long-term financial goals by remaining in the savings account as part of your emergency fund. If your goal is to get out of debt, the money can be used to pay down a credit card. If you want to put more into retirement savings, you can add the money to your 401(k) or IRA.

Before you spend your money, make sure you carefully consider your monetary situation and goals. Prioritize your goals and then use most of your tax refund money to help you reach your financial benchmarks.