I think this is a timely time to address what most people think is their free mystery money at the end of the fiscal year. According to the IRS, the average American receives a tax refund of $2800.00 from the government after their taxes are completed. This is a large chunk of change. To put this in perspective let’s say you start working at 22 and work until you are 65, this is the equivalent of $120,400.00 in tax refunds at today’s dollar and without any investment returns. That’s an insane amount we let the government borrow from us for a year before they give it back to us as the end of it.
People view this money as a freebie that they can use to do fun things with and while one can argue that they could do that, mathematically it just doesn’t make sense to splurge once a year because your tax refunds literally could be funding your retirement. I’ve discussed where the average 401k is less than $100,000 currently and that is even after the amazing bull market that we are continuing to experience, so basically this could be larger than the average American retirement fund if you just deposit this in an account with 0% interest and did so year after year.
That’s insanity, in my opinion, that people are choosing to take money that could fund their freedom and splurge on vacations, shiny new tech toys, or other elaborate things like dinners out. So do yourself a favor when you get your tax refund, think twice before you spend it, how long will you have that shiny new toy before you get bored of it? Ask yourself what you did with your refund last year. If you don’t know, was it really worth it?