The Biggest Mistake People Make With Their Tax Refunds and How to Avoid It

Monica Jackson
Published Jul 9, 2025

The Biggest Mistake People Make With Their Tax Refunds and How to Avoid It

Tax season is a time of anticipation for many Americans, with the prospect of a tax refund offering a financial boost.

However, the excitement can often lead to poor financial decisions.

The biggest mistake people make with their tax refunds is spending the money impulsively. Here's why it's crucial to avoid this pitfall and how you can make the most of your refund.
 

Understanding the Impact of Impulse Spending

Impulse spending occurs when you make purchases on a whim, often without considering the long-term impact on your finances.

According to a 2023 survey by the National Retail Federation, the average American plans to spend their tax refund on everyday expenses, vacations, and major purchases like electronics or furniture.

While it might feel rewarding to indulge, this approach can undermine your financial stability.
 

The Smart Move: Saving and Investing

A better strategy for your tax refund is to save or invest it.

According to the IRS, the average tax refund in 2022 was about $3,039.

Imagine the financial security this amount could provide if put into a savings account, emergency fund, or retirement account.

Consider these options:

  1. Emergency Fund: Financial experts recommend having three to six months' worth of living expenses saved. This fund can protect you against unexpected events like job loss or medical emergencies.
  2. Retirement Accounts: Contributing to an IRA or 401(k) can enhance your future financial security. Compound interest means that even a small contribution now can grow significantly over time.

Reducing Debt

Using your tax refund to pay down debt is another financially savvy move.

According to Experian, the average American carried $96,371 in debt in 2021.

Paying off high-interest debt, like credit cards, can save you a substantial amount in interest payments and improve your credit score.
 

Government Assistance and Benefits

Several government programs can stretch the value of your tax refund further.

For instance, the Low Income Home Energy Assistance Program (LIHEAP) helps with energy costs, allowing you to allocate your refund to other pressing needs.

Additionally, the Supplemental Nutrition Assistance Program (SNAP) can assist with food expenses, ensuring your refund isn't spent on essentials.
 

Planning for the Future

Creating a budget or financial plan can help you manage your tax refund effectively.

Consider working with a financial advisor to develop a plan tailored to your goals.

This proactive approach can help you avoid the common mistake of spending your refund impulsively and instead, use it to build a more secure financial future.
 

Conclusion

While it might be tempting to splurge with your tax refund, taking a more strategic approach can have lasting benefits.

Whether you save, invest, reduce debt, or take advantage of government programs, making thoughtful decisions with your refund can significantly improve your financial health.

Avoid the common mistake of impulse spending and make your tax refund work for you in the long run.

Don't Miss:

Related Articles

7 Secret Places to Look for Unclaimed Cash in Florida...

With prices rising and jobs under pressure, every dollar counts,  and many Floridians may be sitting on money they didn’t know they had. The Florida Division of Unclaimed Property says 1 in 5 resident...

Check Might Be in the Mail: West Virginia Returns $90K in Unclaimed Property...

When the West Virginia State Treasurer’s Office contacted Marion County Sheriff Roger Cunningham, he assumed it meant a bill was due. Instead, they had $90,000 waiting for him.   Wh...

Nearly $17M in Louisiana Tax Refunds Could Become Unclaimed This Fall — Here’s How to Claim Yours...

Heads up, Louisiana taxpayers: Nearly $16.9 million in state tax refunds is still unclaimed — and you only have until September 6, 2025 to get your money before it&r...

Surprise Checks Up to $500? Pennsylvania Is Sending Out Money You Might Not Know About...

Thousands of Pennsylvania residents are getting surprise checks in the mail, and some are worth up to $500. It’s part of the new Pennsylvania Money Match program, which automati...

Want Extra Cash This Summer? Illinois Might Owe You Money...

If you live in Illinois, you might get unexpected cash this summer without lifting a finger, thanks to the state’s Enhanced Money Match program.   What Is the Enhanced Money Match Program? The ...

Free Money Alert: Fairborn Has $215,000 in Unclaimed Funds for Residents...

If you live in Fairborn, there could be money waiting for you, and it only takes a minute to find out. The City of Fairborn announced that $215,468 in unclaimed funds are available for residents an...