Spend your tax refund wisely or treat yourself?
If you're lucky enough to be getting something back from Uncle Sam, you probably have big plans to put every penny of your return refund into your retirement account or finally pay off that pesky credit card bill.
However, now that your return has processed, you might be having second thoughts and wishing you could spend just a bit of your refund on something a little less practical.
If such desires are making you feel financially guilty, shake off those negative emotions. As long as you have debt under control, bills paid and a savings plan, spending your tax refund on yourself can be OK -- and it might even help alleviate the stress associated with sticking to a strict budget.
Here are four rules for using your extra income in ways you'll enjoy without derailing good financial habits:
1. Find a save-to-spend ratio that meets your needs.
Before spending or saving anything, evaluate your current financial situation to see where you have flexibility. Do you have a number of high-interest credit cards that hold balances and are still paying down the loan of that car you bought three years ago? Consider putting 80 percent of your tax refund toward debt repayment, and then split the remaining balance between your savings account and treating yourself.
However, if your credit cards are balance-free and you're caught up with all your other financial obligations, maybe you can tip the spend-to-save scale closer to 50-50. The important thing is to be realistic. There won't be a set ratio that works for everyone, so take inventory of what accounts you need to address before giving yourself some leeway to spend elsewhere.
2. Don't blow the money right away.
If you rush out and use the "spend" part of your tax return immediately, you're more likely to have buyer's remorse and have a bunch of impulse purchases that make you feel guiltier for not being a financial saint. You'll feel less guilty about treating yourself with a piece of your tax refund if you carefully spend it on something you not only want but need.
Instead of dropping dollars on the priciest Starbucks drinks on the menu, put your money toward something like upgrading your outdated prescription glasses to a pair that you'll actually wear or that haircut and color you've been wanting but couldn't justify last month. If you haven't visited your family in a while, buy a plane ticket and go spend quality time with them.
Don't know what you want to spend your tax refund on yet? Hold onto it. You might suddenly be able to treat yourself to some expensive produce from Whole Foods instead of the Wal-Mart Superstore this month, but that doesn't mean you should.
3. Consider quality versus quantity when buying material goods.
You've worked out a plan that lets you indulge a little. Now consider how long that indulgence will last. Spending a little extra on a purchase that lasts longer may be worth the investment.
A quality pair of running shoes to replace your decade-old trainers or a leather briefcase to retire your nylon backpack may cost a bit more, but they'll both last longer than cheaper replacements. Staple wardrobe pieces such as high-end jeans, work shoes and a winter coat are also good items to invest more in upfront.
You may not be able to buy as much with your tax refund this way, but you'll feel better about your purchases if they last more than a few months.
4. Spend part (or all) of your tax refund on someone else.
If you're still uneasy about spending part of your refund on yourself, but feel blue when you think about putting the whole refund toward debt or savings, consider spending part of it on someone else.
Money may not buy happiness, but a series of studies in the 2008 issue of Science found that spending money on someone else can -- even if it's just $5 a day -- can boost your happiness.
So, the next time your co-worker is having a bad day, buy his favorite coffee drink or sweet treat and surprise him. It'll make both of you happy, and you'll feel like you put your refund check to good use.
Sienna Kossman is a reporter for CreditCards.com, a site dedicated to helping people make smart decisions about obtaining and using credit. You can follow her on Twitter at @siennamerrittk.
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