Tax Refunds - - Should We Spend Them or Should We Save Them?

This is a glorious time of year for many taxpayers and a source of intense stress for others. For most, tax time is like a late Christmas because they get a nice present from Uncle Sam. Some people even plan for their tax refunds each year and have them spent long before they ever fill out the first tax form. I personally hate this time of year because it increases the amount of work that comes across my desk as some people take advantage of their tax refunds to hire a bankruptcy attorney. As part of preparing their forms, I must ask how they spent their tax refunds. The list of responses is long and often surprising:

• Vacations

• New cars

• Swimming pools

• Home improvements

• Car repairs

• Catching up bills

• Televisions

• New clothes

• Pets

• Drinking

The one item I never see on the list of "how we spent our tax refunds" that I receive from our clients is saving. I remind our clients that they need an emergency fund, especially after filing bankruptcy, because they will not have the ease of plastic to pay for unexpected expenses. Tax refunds are the perfect way to begin an emergency fund; however, it seems that most people have already planned how to spend their tax refunds long before they receive them. This year, my husband and I took my own advice and put our tax refunds into a savings account for emergencies. There are, however, other ways to invest tax refunds that will provide for your future:

• Open in Individual Retirement Account

• Invest in a stock market account

• Add to your 401k or 403b account

• Set up a tax-deferred college savings account

• Invest in mutual funds

• Purchase life insurance

I realize that the temptation to spend the money we receive from tax refunds is overwhelming especially when we have been struggling for months trying to make ends meet. However, there is a definite difference between a want and a need - - something I am still trying to teach my teenage daughter and some of our clients. The urge to spend tax refund money on items that we have denied ourselves is natural but those that can resist that urge are the ones that are able to straighten out their personal finances and overcome a financial burden.

If you must spend some of your tax refund money on necessities, try to put as much into savings as possible. You have given the government an interest-free loan for twelve months by allowing them to use your money for free. Now is the time for you to wisely use your tax refunds to benefit yourself.

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