About 75% of U.S. taxpayers get a tax refund each year, and the average tax refund is $3,000. Most people see their tax refunds as “free money,” or at least a cause for celebration – but most financial experts say that if you’re getting a big tax refund, that’s not entirely a good thing.
Here are two reasons why getting a big tax refund can be bad for your personal finances:
- You’re letting the government keep too much of your money. Your tax refund isn’t “free money,” it’s your money that was withheld from your paychecks all year long. Since you didn’t owe that money in tax, you could have kept more of it for yourself throughout the year.
- You could have earned interest. Instead of letting the government hold your money all year, if you didn’t get such a big tax refund you could have invested that money in a savings account or even stocks and bonds.
Of course, getting a tax refund isn’t all bad. It gives you a sudden boost of cash that you can use to pay down debt, add to your emergency savings or save for retirement. Just don’t spend your tax refund all in one place!