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Don't get a tax refund.  That's one of the first things most personal finance bloggers will tell you.  It's giving the government an interest free loan.  That's what they will say to justify the reasoning.  Keep the money yourself.  That's the advice you'll get.  Earn the interest on your own money.  That's the benefit you'll be told justifies it.

I'm here to tell you that you don't need to worry about it.  If you get a refund, even a large one, it's no big deal.  It really isn't much of a problem at all.

The Justification For No Refund

Avoiding a tax refund was one of the first big tenets of personal finance I heard when I started reading money blogs.  That was over ten years ago.  I listed above the reasons, but it basically boils down to the idea that you shouldn't give the government an interest free loan.  It's money that you paid all year that you get back, right?  So, you should earn interest on it.  Interest is more money.  More money is great for personal finance. It all makes perfect sense.

It's Stale Advice

Back in the day ten years ago, I was 100% for this.  However now, I really don't think it's that important.  Why?  Two

image from Morguefile courtesy of clarita

words: Interest rates.

Ten years ago, banks were flying high and paying out big interest on savings accounts.  Getting a yield of 5-6% was not uncommon.  Things like CDs and such could get you 7% or more.

That was pretty big money.

Now, interest rates are pretty low.  The biggest savings rate I earn is 1.75%, and that's up big from a few years ago.  It was 1%.

Say you get a $3,000 refund.  Your interest, back in the heydey, could have been as high as $210.  Now, with 1.75%, you'd get $52.50.  *I know that it wouldn't come to these exactly, but for simplicity purposes, I'm going with these.

When Something May Not Be Better Than Nothing

One thing I still hear is that, even with low rates, it's still free money.  After all, while $52.50 isn't as much as the $210 you could have earned, it's still $52.50.  You should grab it, right?

My answer: Sure, but….what about temptation?

See, when you get extra money in your check, it's easy to say that you won't spend it.  But, what if you do?  In my example above, it would only take $52.50 of spending through the entire year before you come out behind.

Think about that.  $1 per week and you'd be behind.  One night out with dinner and drinks.  You get the point.

You Can't Spend What You Don't See

Getting $52.50 is certainly nothing to sneeze at.  But, if you take away the temptation to spend that throughout the year, most people won't.  If you don't see it, you'll be less inclined to spend it.

Is taking away $52.50 a small price to pay to end up with a guaranteed $3,000?  I think that for many, it might be.

It's All Discipline

Many will read this and be aghast.  They'll say that of course they could save that money every week.  They'll point out that any money left on the table is foolish.  They're right.

But the fact is, those people are in the minority when it comes to saving.  Many people may not be disciplined enough to end up with that full $3,052.50 at the end of the year.

See, I'd rather a whole bunch of people end up with $3,000 than end up with $2,500 because they spent $10 per week throughout the year.  For many, that's worth it.

Know Yourself And Trust Your Gut

If you end up getting a hefty tax refund, don't beat yourself up.  If anything, understand that it's still your money.  Interest alone won't make you rich, so don't sweat the lost opportunity.

If you think you can make the change, then do so. Keep the money.  Enjoy the interest.

But if you decide it's not worth it, don't sweat it.  If you think you might get tempted to spend a little bit, then let the government have their loan.  Take your refund next year and enjoy it.  I promise it's not that big of a deal.

Readers, what do you think about getting a tax refund?  Am I violating the personal finance code of ethics, or do you see my point?