Should You Splurge With Your Tax Refund? Only if You Can Say Yes to These 3 Things

Before you use your refund to treat yourself, make sure you don't need it for something else.

April 18 was the tax-filing deadline, and whether you got your return done at the last minute or weeks ahead of time, you may now have a sizable refund coming your way. And if that's the case, you might already be making plans to use that refund to indulge in something that will make you happy, whether it's a vacation, a wardrobe update, or the luxury bedding set you've had your eye on for months.

There's nothing wrong with using your refund to treat yourself if your finances allow for it. But before you take that money and splurge, make sure you can say yes to these three things.

1. Is your emergency fund complete?

You never know when life might throw you a curveball. It's important to have money tucked away in savings in case that happens. 

If you don't have a minimum of three months' worth of living expenses on hand in savings, then you really shouldn't spend your refund until you've met that goal. In fact, three months' worth of bills is really the minimum amount you should aim for, so even if you've reached that threshold, you may want to hold off on spending the cash the IRS has sent you and aim for six months' worth of expenses in the bank.

2. Are your credit cards fully paid off?

Credit card debt really is bad news. For one thing, it can cost you extra money in the form of interest charges. It can also cause your credit score to drop if you rack up too much of it. And from there, you might have trouble getting an affordable loan or getting approved to rent a home. 

If you have a nagging credit card balance, you should really use your tax refund to pay it off. If there's money left over, then from there, you may feel free to spend it. But you shouldn't splurge until your credit card balance goes down to $0.

3. Are you on track for longer-term goals?

If you've been tired of renting and have been saving to buy a home, a sizable tax refund could get you closer to your down payment. Plus, if you're in your 30s and have yet to start setting money aside for retirement, your refund could help you fund your IRA for the first time.

These are important goals to work toward. While spending your tax refund on something fun may give you more instant gratification, using that cash to meet these objectives is apt to better benefit you in the long run. 

Should you use your refund to splurge?

We all deserve to treat ourselves once in a while, and your tax refund could be your ticket to something special. Just make sure you're really in a solid enough financial position to make splurging feasible. It may take some self-control to put that refund to good use rather than blow it, but in the end, you'll likely be grateful for having gone that route.