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Tax season is here and for millions of Americans, this means a windfall of money from the IRS. So far this year, the average refund is $3,079.
While many people receiving their refund will use it wisely to pay down debt, or help them with everyday living expenses, there are those who foolishly spend the money.
After hearing about some of these tax refund spending fails, I decided to take a poll and find out the dumbest ways people have spent their tax refund.
Here are their answers for you to enjoy, or cringe at. (And to learn from their failure to not make the same mistake).
Table of Contents
#1. Lip Injections
A few years ago, Sarah had $1,800 in her checking account thanks to her refund. While she wasn’t struggling financially, she also wasn’t setting the world on fire with her mastery of personal finance.
Nevertheless, what she really wanted were lip injections, “like all the beautiful women she sees on social media”. So she paid $1,000 for the procedure and was happy at first. But in time realized her foolish ways.
This became more evident when she had to go in for a refill one year later for another $1,000. Looking back, she now wishes she went on a vacation or simply saved that money instead.
#2. Grad School
Getting more education and improving ourselves is a smart financial move, at least that is what we are told. But too many times we think we need an expensive degree to get ahead.
This is what happened to Jim. He works in finance and decided to go back to school for his MBA to get a higher paying job. He used his tax refund to take his first course and then used a combination of student loans, savings, and employer assistance to cover the rest.
While investing in yourself is usually a smart move, this time it was a mistake. Jim ended up getting laid off and finding work in another profession, so he never used the skills he learned. And thanks to his student loans, his refund turned into a monthly bill he is still paying off.
#3. Buying A Car Instead Of A Bike Rack
This is one of the “what in the world were you thinking” times in a persons life. Joe had a sports car and mountain biking was a passion of his. The problem was that his bike didn’t fit in the car.
The simple solution would have been to buy a bike carrier and be done with it. But Joe loved his car and didn’t want to risk scratching the paint or doing any other damage. His solution was to buy a beater car.
But, he didn’t do his homework on the car and it turned out to be a money pit. When all was said and done, he spent close to $10,000 on the car and repairs, just to avoid the potential of a scratch. The good news: the beater got better gas mileage than his sports car, so he saved money on gas.
When NFTs or non-fungible tokens burst on the scene, they were all the rage. Because they were the must have thing and everyone was hyping them, many people spent a lot of money.
Sadly, they turned out to be more fad than long term investment. Brian learned this the hard way. He spent $1,500 on digital artwork of a sunset, thinking it would explode in value. It did explode, just not in a good way. He recently sold it for $125.
#5. Fancy Dinner Out
Sometimes, the biggest mistakes are small indulgences that we don’t think twice about. This is how Clifton wasted some of his tax return one year.
“One of the most foolish things I spent my tax return on was a seven-course chef’s tasting menu meal with wine pairings, of course. In other words, a fancy dinner. What was the occasion? There wasn’t one. I love food, and I received my tax return, so why not go out and blow it on a nice meal? This was before my wife and I got serious about our finances and long-term goals. Knowing now that I could have used that money to help build wealth by investing hurts a lot.”
It’s important to note that if your finances are in good shape, spending money on a fancy meal out is perfectly fine. But when you are drowning in debt, it’s not a smart move. A better solution is to gain some financial literacy so you can have your money working for you.
#6. Investing In Meme Stocks
Back in 2021, meme stocks were all the rage. Stocks like Gamestop, AMC, Bed Bath & Beyond, among others were seeing their stock prices increase in value as individual investors tried to hurt the hedge funds shorting stocks.
This worked well until people lost interest, and started losing money. That is where Melissa comes in. She took her $2,800 tax refund and put it all into Gamestop. She bought in at $210 per share, thinking she was going to turn her 13 shares into a million dollars.
When the stock began to rise in value, she started to get excited. However, that excitement was short lived as the price cratered down to $50. She held on, hoping for a rebound that never came. Sadly, she sold her shares and got $585 of her money back.
When asked what she did with the money, she said she put it into an emergency fund for a rainy day.
#7. Taking A Vacation You Can’t Afford
We all dream of taking a lavish vacation, but most of us don’t because of the cost. However this didn’t stop Sarah. She has been dreaming about a trip to Aruba for years, and decided 2017 was the year.
So when she got her tax refund, she put all of it towards her vacation, even though she had credit card and student loan debt. Oh, and the trip cost $2,200 more than her refund, so she put that amount on her credit card too.
While she says she loved the trip, she does look back with regrets. “It wouldn’t have been fun to put that money towards my debt, but I’d be in a better financial position today had I done that”, says the 46 year old, who is still in debt.
You already know where this one is going. It is the same as NFTs and meme stocks. In late 2017, Bitcoin went on a tear, coming close to $20,000. This is when Jason got in, as everyone was talking about how crypto was the future.
Says Jason, “I got caught up in the hype. I didn’t want to be the only one of my friends who wasn’t going to become a millionaire overnight, so I bought in, even though it didn’t make any sense to me.”
Shortly after investing, the price of Bitcoin came tumbling down, all the way to $5,000 which is when Jason sold out. While the lesson is to never invest in something you don’t know, another lesson is to be a long term investor. Had Jason held on, he would have made his money back and become richer when the price spiked in 2021.
I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.