A tax refund isn’t “found money,” so don’t treat it that way!
I have seen that people who would normally set aside paycheck dollars for the future tend to treat dollars that come from a tax refund differently. This tendency, referred to as mental accounting, means that we don’t treat all of our money as one big pool. We break out each dollar based on somewhat arbitrary factors e.g., where it came from, to make spending decisions in isolation of the rest of our finances.
Because money comes into our lives suddenly and with no clear destination, it’s often viewed as “found money.”
What do we generally tend to do with found money? We blow it, of course.
If you expect to receive a big fat check (or electronic transfer) from Uncle Sam, and most tax returns resulted in one last year, it’s important you understand both why you’re getting this windfall and the best way to use it.
Pro-Tip: Plan or budget every dollar from your refund before it hits your bank account.