3 of the Worst Ways to Spend Your Tax Refund
As refund checks arrive, many of us our making plans for the “extra” money. Just about half of us expect to receive a refund, according to a Bankrate survey, and for those of us who actually receive a chunk of change this tax season, some of us will be responsible, and others will blow the money and party like it’s 1999.
What are you going to spend your refund on? CNN reports indicate that in 2011, around 42% of Americans used at least some of their refunds to pay down debt, and another 42% placed part of their refund into savings. Some taxpayers — around 30% — used portions of their refunds for everyday expenses, and some used their money for vacations, major purchases, and other expenses.
“Other expenses” is a broad category, as is the category: “major purchases.” To gain a little more insight on what exact types of purchases fall into these categories, we scoured social media sites and other resources to see how Americans spent their tax refunds over past years. Here a few of the more ridiculous expenses we found.
1. Booze and gambling
Around 12% of taxpayers who received a refund check spent it on some sort of vacation in 2011. While many taxpayers went on family vacations, there were certainly those few who decided to “live it up” for a weekend in Vegas or Atlantic City.
Casinos make up around one-third of the multi-billion dollar gambling market. According to Statista, “gaming machines (20%), betting (13%) and bingo/other gaming (4%) make up the rest of the market.” This is not the wisest investment, as your odds of winning it big in the Casino are pretty slim especially when you add alcohol into the equation.
As of late 2012, the Nevada State Gaming Control Board reports the win percentage odds for craps at around 13.5%, and three card poker, at around 31%. Slot machine win percentage odds are even lower, with win percentages that are generally less than 10%.
2. A shopping spree
Whether they decide to allocate it to Best Buy or Walmart, or to Apple or Android, many taxpayers go out and buy hundreds — even thousands — of dollars worth of merchandise they do not need. One Twitter user posts about last year’s tax refund, “Spent tax refund on luxury goods, now considering bankruptcy,” and another says, “I thought I was an adult until I spent my entire tax refund at Spencer’s Gifts.”
These specific social media users are certainly not the only one’s to go out and blow their tax refund checks, though. Many taxpayers view this amount as “extra money,” as opposed to money they earned and therefore, they feel content spending it. About 7% of Americans admitted to splurging or going on shopping sprees with their tax returns. Remember the 2008 economic stimulus checks from a few years ago? According to a publication by the Kellogg School of Management, “On average, households spent half the amount of each stimulus check within the same quarter that it was received. (The average amount for each check was $950.) Between 12 and 31 percent of the stimulus checks went to purchase non-durable goods.”
3. Large or frivolous purchases you can’t afford
Some taxpayers actually use their tax refund checks for breast augmentation or other forms of plastic surgery. Several social media users proudly show off or post about their new surgeries, courtesy of their tax refund checks.
Cars are another common expense people buy with a tax return. Which may not sound like an bad idea. However, some of these taxpayers buy cars or place a down payment on a vehicle and have no extra money in their budgets to pay for payments. A publication by Madame Noire suggests “When it comes to big ticket items that you will have to make payments on, don’t even consider your tax return. Plan your payments according to what you are pulling in from your regular 9-5, because that is a realistic picture of what your finances will look like all year long. If you need a car, consider buying something used that you can pay for completely at one time.”
A refund check is a large amount of money that you earned; it’s not a gift or a windfall. A refund can really be a great opportunity to get ahead — it just requires a little self control.