Every year, millions of Americans look forward to their tax refunds. It always feels like a windfall since the average refund, according to the IRS, is more than $2,000.
But that money, for most people, isn’t really a windfall. It’s called a refund for a reason: That money is already yours. And you’ve been offering the government an interest-free loan.
Putting your money to work for you
When you get a tax refund, you are simply getting your own money back. It means you have overpaid on your taxes and the government has been using the excess for a year, while it hasn’t been benefiting you at all. Think about your last tax refund. You could have been using that money to your advantage all year by:
- Paying down debt. High-interest debt is a money waster and getting rid of it can help you keep more of your money, instead of lining the pockets of your creditors.
- Investing. Offering the government an interest-free loan means that you are getting nothing in return. What a waste of money! Instead, you could have been putting that money to work for you through investments. Even a CD or online savings account is a better use for your cash than lending it out without a yield.