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  • Bob Brooks

Is Getting a Tax Refund a Big Mistake?

"If you’re getting a tax refund, you are making one of the biggest mistakes out there,” she tells CNBC Make It.

Well, Suze, I would have to respectfully disagree with you on that statement. I can think of quite a few financial mistakes that go on the list way before getting a tax refund. Suze Orman, just like Pop Culture Finance, is into the textbook answer. The textbook says ________ so it has to be true.

The problem with the textbook is that the answer to money questions are housed in perfect scenarios. People, along with the decisions that they make with money, are far from perfect.

The notion is that if you overpay taxes during the year you give the government an interest free loan that they repay back when you file your taxes.  

Let's dissect the idea of a tax refund - not from the standpoint of you making a mistake. Lets assess it from the standpoint of you making decisions that will help or hinder you in the quest for your financial goals.

If you are using your tax refund as a forced savings plan (minus the interest) and using it one time a year to pay off debt or add to your emergency plan, then that could be a good thing. Remember what most people in Pop Culture Finance fail to get is that the ordinary person might need help to save money to pay down debt or build an emergency fund. 

Although the textbook is theoretically right about giving a tax free loan to the government, it works for you - and that is all that matters.

If you are paying in too much and blowing it the minute that you get it, you might want to reevaluate how you are managing your money.

If you have developed a spending plan, paying less in on your taxes each month, taking more home and increasing your cash flow can work much better to build an emergency fund or pay down debt. 

Bottom line - if you are thinking out of the box and there is a useful reason for getting a tax refund and it works for you, then do it. I am all for the advancement of the process for achieving goals. If you find that a refund is found money that you can spend on whatever excites you in the moment, you might want to re-assess your spending plan.  

Either way, it isn't one of the biggest mistakes out there.

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