Tax Refunds: Fools' Gold?

With April 15th lurking around the corner, financial guru Dave Ramsey has been receiving lots of questions about taxes.

And, since more than two-thirds of filers got refunds last year, it's no surprise that the majority of those questions concern refunds.

What may be surprising is the attitude of the author and radio host about refunds.

In Part One of The Early Show series, "Tax Tips," Ramsey observes that most people are happy when they get their refunds. They feel as if it's Christmas in April.

But Ramsey says, "Christmas is in December, not April."

He points out that, when you receive a refund, you're not getting a "bonus," you're getting your own money back. It's like lending a friend $10 for lunch and being repaid two weeks later: You're not suddenly $10 richer; you're just back where you started.

Receiving a big tax refund is actually a sign of poor financial planning, Ramsey stresses.

Among the questions asked of Ramsey, Eric in Ohio writes, "What should I do with this huge tax refund I am receiving: Go to Hawaii?!"

Ramsey responds quickly that Eric shouldn't be getting a refund. He is having too much money taken out of his paycheck for taxes each month and, essentially, it's being kept in a government savings account that pays zero interest. It's kind of like Eric is sticking this money under his pillow instead of putting it to work. Who would voluntarily keep "extra" money in a place where it earns no interest?

However, if you're in Eric's shoes and receiving a big refund this year, be smart about using the money. This is not an excuse to go out and buy new shoes or a TV! Instead, use the money to build an emergency fund or pay down debt. If you've already done these things, invest the money in a retirement fund such as a Roth IRA.