This article was originally published in 2020. An update can be found at the bottom.
In the coming months, roughly 96 million Americans will expect to receive tax refunds when they file their 2019 tax returns. Last year, the average refund was over $2,800. For many, that represents the biggest single “paycheck” of the year.
This bonus via tax refund offers a chance to spoil yourself, catch up on bills, take a vacation, or whatever else. According to a recent study, half of Americans plan to save at least some of their refund. We encourage you to follow their example.Source: Statista
What do you do when you receive a large chunk of money? Maybe it's in the form of an inheritance, a tax refund, a bonus check from work, a large commission check from work, or even lottery winnings... someone's got to win those things, right? The question is, do you save the money or do you spend it?
There's tremendous social pressure in America to spend that chunk of money you got. People are posting on Facebook how they got that new pickup truck, or they got the new boat, or they're going on vacation because of a bonus check they got or even tax refund... Sometimes we can get comparatively large checks! You feel like you deserve to spend it because you worked for that tax refund or that bonus check. There's emotions and culture that are telling you to spend it.
"Instead of saving what's left after spending, try spending what's left after saving." -Warren Buffett
What we’re about to tell is both counter-cultural and counter-intuitive. Save your tax refund.
Go ahead and reward yourself with something small, some token of celebration and appreciation for however you got the money. Then with the rest of the money should save that money. Save that bonus! Save your tax refund.
If you have high interest rate debt, you definitely want to get that paid off. Otherwise, you should save your tax refund or bonus for a rainy day, that emergency stash, or save it for a time when you no longer have to work for money!
Update: Let's take a look at how the numbers stack up today.
Overall, the numbers show that despite COVID-19, the war in Ukraine, and everything else that's happened in the last few years, nothing much has changed on where American's plan to spend their tax return. We still think it makes sense for most to save at least some of it.