It's that time of year: Many who are receiving a tax refund are weighing what to do with it. Plan for a summer getaway? Put it away for the holidays? Splurge? Spend? Save? GreenPath counselor Kathryn Bossler discusses the pros and cons of using your refund for a spring or summer getaway:
Is it okay to use your tax refund to pay for a vacation? There is nothing necessarily wrong with using your tax refund to take a vacation but first ask yourself if the vacation is the best way to use your refund? Many times, a vacation falls under the “wants” category of expenses, not the “needs”.
So, I would suggest taking time to review your entire financial situation, before putting your refund towards a vacation.
What's a better approach? Ask yourself a few more questions:
- Do I have any high interest debt (credit cards, loans, etc.) that I need to pay off?
- How much do I have in emergency savings?
- What other major expenses are coming up and how will I pay for them?
- Do I have money saved in case of a home repair, car repair, medical emergency?
- Were there expenses last year that came up that I struggled to pay for or that I regretted not setting some of my refund dollars aside for?
If you decide that the refund is really better spent on paying down debt and saving for emergencies, consider reviewing your budget and work towards saving for that vacation out of your paycheck.
For example, if you want to take a vacation in August that will cost $2000, consider dividing that $2000 by the number of paychecks that you will have until August and work to save that.
Even consider having funds go direct into a savings account specifically for a vacation.
How much of a tax refund should go towards debt and how much towards vacation ideally and how much towards savings? This is really hard to answer. The key here is that there needs to be a plan. For example, if you do have debt, is there a clear plan to pay that debt off? Do you have a system in place for building savings and are you sticking to it? The vacation is something that needs to be considered, in relation to these other issues.
What's the danger of splurging on a vacation with your tax refund? The danger is that it could be a blown opportunity. A tax refund can be used to really make a significant difference in someone’s entire financial situation. It could be a way to make a major dent in credit card debt, or a way to be able to build some emergency savings that many struggle to build throughout the year with a paycheck.
So, take some time, weigh the pros and cons and see how you can put together a vacation plan wisely.
Learn more about ways to put your tax refund to work for you, by clicking here.