Impulse Spending and Tax Returns
Thursday, March 24, 2011 at 2:13PM JAPAN RELIEF CHALLENGE! I know on posts I am usually reaching out to you, my awesome readers, to help support Financially Digital and Financial Literacy. Today I’m reaching out to give aide to a much bigger and life supporting cause. I want to issue a challenge to you all that the amazing patronage here can raise $5,000 to be donated to the Salvation Army’s Japan Response efforts. Everyone that donates gets their name and website published on the Benefactors Page as well. I will post a weekly update to show you all where we are and how we can make an impact together. I’m also trying to come up with something to give away/do if we hit that mark so if you can think of anything you’d like to see just leave it in the comments below!
A ton of what you are going to read about in personal finance spheres is how to prepare for everyone’s favorite day in April. Tax Day. There is a ton of great information if you have questions or are looking for new angles when preparing your taxes this year. I always advise consulting a professional before you try getting too creative with your filings – if not it’s ok too. If you get something wrong they send it back and you get to try again. What I want talk a little bit about today is what you are doing with your return this year, hopefully you are entitled to one. So, what to do with this influx of cash?
Being an impulse shopper, I know that there is a tremendous force compelling us to buy the next tech-toy or indulgence. Today you will hopefully get a little insight on what else you can do with your return besides go out and purchase the iPad 2, like I want to. The first thing to understand is that with every purchase there are parts that contain both emotional and rational thinking. We make decision as consumers who are always trying to maximize the utility or gratification we experience. Impulse shopping happens when we let the emotional side of the decision and the gratification we expect to feel outweigh the rational side. We overlook the opportunity costs associated with spending and spend purely on feelings. The biggest things we omit are the plans we have in place that keep us financially fit.
My first tip is before you decide to do anything with this mini-windfall is give yourself a quarterly check up on whatever plan you have in place. If you don’t have one, now is the time to start one. Evaluate and audit your goals, spending habits, emergency funds, and all the other buckets you have set up to save for the things you want for yourself. If you find any shortfalls in any of your goals then use that refund to sprinkle funds between what you are already saving for. Just think of how great it will feel if you delay the immediate gratification when you get to spend or execute the plans you’ve already been working on.
If your plan is right on track and you don’t think you have any shortfalls or want to accelerate reaching your goals it’s not the worst thing in the world. I would encourage you to look at your emergency funds next. Do you have enough stashed away in an interest bearing account to cover your approximate expenditures (both variable and fixed) in the event you are without an income source? I know that in the last few years of economic volatility has made it really hard to realistically stress savings. Savings weren’t unimportant it’s just that more pressing reasons not to save existed – making the rent/mortgage, car payments, educations expenses, etc. Sounds a little cliché but the quicker you stash your refund away the easier it will be to forget about it and just let it earn that interest.
Pay off some debt. I can’t tell you to just save in good faith while you may be paying interest that is bigger than what you are earning in your financial accounts – that’s counter intuitive. So if you’ve been struggling with debt or have been slowly paying whatever debt you have, give yourself a hand and save yourself from unnecessarily paying interest. Just think, the faster you pay off debt the faster you will make the funds you were using to pay off debt available for something else. If you’ve already grown accustomed to live without a portion of your income because you are sending out monthly payments, think about how easy it will be to start saving those same funds. The only difference is the bank will be paying you the interest.
Invest in your business and yourself. If you’ve been reading this article and so far nothing has really applied to you now is your chance to cut loose. If you are a professional who could benefit from a new professional designation now might be the time to start i.e. CFP, CPA, ChFA, etc. Do you own a business? This might be the time to invest in new plant, equipment, or even technology. If the iPad 2 is really something that will help you generate more income than here is your chance to run out and grab it. Notice the difference; not just because you want it but because it will help you be more efficient thereby making you more profitable. Anything that helps you reduce some stress or increases your level of health and fitness works too. Remember if you are less stressed at home and at work odds are you’ll be more effective as well. Not only are you your biggest capital asset you might have the opportunity to help get a higher return on your tax refund investment, in you, than what an interest bearing financial account would yield.
Hopefully there was something in here today that provided some inspiration for you to fight off those impulsive urges - unless it's donating to the cause above. This time of the year can be a great chance to catch up from the overspending done during the holiday season that you may or may not be paying for. If you rationally work out what you really want out of your money then your return will always provide you with a greater and longer lasting feeling of satisfaction then the shallow gratification of a quick purchase.
Consumer Behavior, Extra Money, Goals, Spending, Tax, Tax Return in Behavior, Tax 
Reader Comments (1)
I guess it's time to do my taxes, huh?...