Excited to get a refund? Many of us look forward to a big ol’ fat refund this time of year. But should you be getting a refund? Here are the pros and cons of receiving a refund:
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Pro – Refunds can help you save: If you’re not very good at saving, a tax refund is a great way to pad your emergency fund every year. That being said, the refund money would need to go straight to your savings account, not toward a new TV.
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Con – You’re giving the government a free loan: Instead of just saving that money and letting it earn interest on your behalf throughout the year, you’re letting the government hold onto your extra cash for you.
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Pro – It FEELS like extra cash: Let’s say your emergency fund is in good shape, you may not feel the need to put a tax return directly into savings. If you’re budgeting well throughout the whole year, then your finances may not be missing that extra cash you’re handing over until your refund. If this is you, then a tax return probably feels like free money.
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Con – You’re getting less from your paycheck: We all have bills. Paying bills is not a fun activity. If money is tight, you would probably prefer a bigger check going into your pocket every pay period. If you can budget without that cash, that’s fine. If you’re missing it, it may be time to reassess what you pay in each pay period and say goodbye to the yearly refund. That way your wallet won’t feel so empty during the year.
The whole idea is that there really is no right or wrong way to handle whether you get a refund or not. It’s really up to you and your personal situation. Figure out the pros and cons. If you need to, talk with someone about your financial situation. Then go from there and make the best decision for you and your money.
Adapted from the CU article: Pros and cons of a tax refund by John Pettit https://www.cuinsight.com/pros-and-cons-of-a-tax-refund.html