What’s the best part of tax season? When it ends, right? Well, for many taxpayers that might be the answer. But for millions, the fact that they get a large refund is probably what comes to mind. A big tax refund might seem like a great thing on the surface. Who doesn’t like to get a bunch of extra money?
The problem is, in most cases, that money is not really extra. The fact is it’s actually money you could’ve had at your disposal throughout the year. It’s money you could’ve used for several other things, including savings or investing.
Instead, that money goes to the government, which can then collect interest on it. That means you’re not collecting interest on it, or using it for anything else. Just think of how useful that extra money might be if you have an emergency come up during the year. It could make a huge difference in your overall financial picture.
If you’re refund is large, you would be smart to make some adjustments in order to reduce it. Start by checking your W-4 to make sure your withholding amount is accurate. You don’t want your employer to withhold too much, or too little.
Once you start seeing the extra money in your paycheck, you shouldn’t go out and blow it. It’s smart to put that extra cash into your savings. That will give you a safety net in case of an emergency, or in case you haven’t withheld enough.