An illusion shared by everyone becomes a reality.Erich Fromm
It is March and that means that we can start filing for our tax refund. That is of course, if you do not owe the government any more. If you are lucky you will get a big sum of money back from the government, and everyone who is eligible for a tax return is thrilled about this time of the year. But why should we stop getting so excited about it? To dive right into it, let’s look at some numbers.
According to Bankrate, the average payout for a tax return for a US citizen in 2019 was $2,869 and the year before it was $2,910. That is nearly $3,000 which has been paid too much in taxes by many individuals (if you wonder why I am using statistics from the US, even though I am not a US citizen myself, the honest answer is because these are the easiest numbers to find online. And in my opinion, they still paint an accurate picture on the matter, namely that a huge group of people are paying too much.)
Why getting tax refund is a bad thing
Here are a few reasons why receiving that $3,000 payment back should not excite us as much. First of all, the money was yours all along, so why is it that we perceive a tax refund as a good thing? That $3,000 could have been used last year to pay off some more of your debt in time, or to help build an emergency fund. That $3,000 could have been put to use.
Second, the government is holding on to your money without paying any interest over it once you receive your money back. This might not seem as a definite argument, but when you know that there are actually investments called bonds where you lend money to the government and will receive a fixed interest over it, you realize that you missed out. Because that is precisely what happened.
How to put your refund to use
So even though paying too much taxes withheld you from (investment) opportunities or stabilizing your finances by paying off debt last year, that does not mean you can not do exactly that right now. If you are one of those people that see a tax refund as the perfect way to finance the purchase of a new flat-screen TV, you will keep yourself from still being able to get ahead in your finances.
Instead of using your tax return to make a huge, unnecessary payment, you should put your money into some kind of investment, pay off debt, or use it to build your emergency fund. Personally I would put most of my tax refund into some type of investment so it will earn more money over time. In the past week I have done my due diligence on different types of investments to determine where I would want to invest in.
Another way to put your tax return to use is to save it for retirement. This can either be done by investing in a retirement plan or by picking any other investment that appeals to you.
Of course, investing depends on the person and takes into account various factors. You have to be willing to do your research before you invest and my advice would be to invest in something that excites you. This makes doing research a whole lot easier. But if investing is not for you, there are different ways to get ahead, like paying off debt and building an emergency fund as I mentioned before.
What would you do with your tax refund?
Lots of love,