When tax season rolls around, you may be pretty excited about a big ol’ fat refund. The question is, should you be getting a refund at all? If you had a part-time job in high school or college, you probably weren’t banking too much cash on a weekly basis. In those days, a tax refund was the perfect post-Christmas gift from the government. But these days, you need to be a lot more responsible with your finances. So, what do you prefer now? Here are some pros and cons to getting a refund to start your year.
PRO – REFUNDS HELP YOU SAVE: If you’re not very good at saving money, a tax refund can be a great way for you to pad your emergency fund every year. As long as that check is going straight into your savings account, it’s an understandable excuse for overpaying on your taxes throughout the year.
CON – YOU’RE GIVING THE GOVERNMENT A FREE LOAN: Instead of doing the financially responsible thing and allowing that extra money to earn interest on your behalf throughout the year, you’re just letting the government hold onto your extra cash for you.
PRO – IT FEELS LIKE EXTRA CASH: If your emergency fund is in good shape, you may not feel the need to put a tax return directly into your savings account. If you’re budgeting well throughout the year, then your finances may not be missing the extra cash that you’re lacking. If this is you, then a tax return probably feels like free money. Maybe you’ll spend the refund on a family vacation, maybe you’ll treat yourself to something nice. If you can afford to do it, have fun with it.
CON – YOU’RE GETTING LESS FROM YOUR WEEKLY CHECK: We all have bills. Paying bills can be one of the least fun activities you regularly participate in. If money is tight, you would probably rather have a bigger check going into your pocket every pay period. If you can budget without that cash, no problem, but if you’re missing it, it may be time to say goodbye to that yearly refund so that your wallet doesn’t feel so empty during the year.
Here’s the bottom line: There’s really no right and wrong way to handle your taxes, it’s really just up to you. Figure out what the pros and cons are for your situation and trust your instincts.