For Mark Roberts’ Use:
Now that tax season is in full swing, you’re probably reading a lot of advice on how to put your tax refund to work for your future. The other side of the coin, of course, is that there are plenty of ways to waste your windfall. Before you let that money burn a hole in your pocket, consider these common tax return mistakes.
Making a down payment on a boat or car. If you’re in desperate need of a new car, then by all means go ahead. But if you can wait just one more year, then it’s probably smart to do so. A boat, of course, is purely a pleasurable purchase. Either way, try to avoid taking on yet another monthly payment if you’re still carrying a high credit card balance or other debt. Use your refund to pay down that debt first.
Splurging on impulse purchases. Often we buy things on impulse and then regret the decision later. Do you have money set aside in savings for unexpected car repairs or dental bills? If so, then a small indulgence probably won’t hurt. But if you don’t have a rainy day fund, you might really regret that fancy handbag or flat-screen TV later this year.
Gambling. The Powerball jackpot goes up to $400 million, and you can’t help thinking about increasing your odds buy purchasing a bulk number of tickets. Remember that the odds of winning the lottery are still incredibly small. Throw away a dollar if you want to indulge yourself, but buying a large number of tickets is a bad idea.
Investment schemes. Shady opportunists know you have some extra money around this time of year. Be extra vigilant about get-rich-quick schemes. If it sounds too good to be true, then it isn’t true.
Home improvements. You might be tempted to add a pool or make some other improvement to your home. Consider these decisions carefully, as many home improvements don’t actually add any value to your home, and can even make it harder to sell if the need arises.
Doing nothing. Don’t just let that extra money sit in your checking account. Move it to an interest-bearing savings account and establish a rainy day fund, make an extra house payment, or talk to a financial advisor about investment strategies that can really pay off in the long run.