Invest, Save, Enjoy: 5 Best Ways to Use or Spend Your Tax Refund

When many Americans file their taxes, they expect to receive a refund—all the money they’ve overpaid in taxes during the year. While you could spend this extra money on new clothes or a night out, consider this: you can receive a significant return on investment if you’re smart with your refund.

Read on to discover our top five methods for how to spend the tax refund you receive.

1. Factor your tax refund into your monthly budget

To stretch your tax refund dollars further, invest it into your budget, then purchase gift cards for everyday expenses through a RaiseRight program. You’ll earn money back while building savings or fundraising for a cause you love.

Say you receive a tax refund of $1,000, equivalent to your monthly budget for groceries ($700) and dining out with the family ($300). By using RaiseRight gift cards, which offer average earnings of 4% for groceries and 10% for restaurants, you could earn an extra $28 from grocery gift cards and an additional $30 from restaurant gift cards. Consider how this additional $58 could benefit your cause, whether it's supporting your child's tuition, covering their athletics fees, funding a band trip, or donating to your church or nonprofit.

Not yet enrolled in a RaiseRight program? Reach out to your organization's fundraising manager to get the ball rolling. Alternatively, if your preferred organization already uses RaiseRight, you just need your org’s unique enrollment code to join and earn.

2. Build your emergency fund

Big expenses, like medical bills, or unexpected circumstances, like major car repairs, can put you in a financial bind if you don’t have a solid backup plan.

Fortunately, with an emergency fund, you can be prepared. Generally, an appropriate rule of thumb is to save three to six months of expenses for emergencies. While your tax refund is likely not this much, it’s a helpful start (or a helpful addition to your existing fund).

3. Pay down debts

Anyone with debt (especially high-interest debt, which only grows the longer you have it) may find it extremely beneficial to pay down or pay off this debt with their tax refund. Common high-interest debts include:

• Education loans
• Credit cards
• Car loans
• Medical bills
• Home loans

When you pay these debts down, you’ll owe less on interest, allowing you to take more control over your finances.

4. Add your refund to a high-yield savings account (HYSA)

For people who don’t have much high-interest debt or already have an emergency fund, investing a tax refund into a HYSA is a smart financial decision. What’s beneficial about setting your money aside in a HYSA? 

Put simply, you can save (and earn interest on) funds for any reason, such as:

• Downpayment on a new home
• First and last month’s rent on a new apartment
• Car upgrade
• Home repairs
• Continuing education

While these are beneficial goals for your HYSA, you don’t have to have anything lofty in mind. Save that money for a rainy day, knowing it’s growing monthly and ready for whenever you need it most.

5. Put your refund towards home and life improvements

If you’ve been putting off home improvements, consider putting your tax refund toward them. Even if you don’t have any improvements on your wishlist, affordable upgrades, like updating old windows or investing in energy-efficient appliances, can yield a strong return on investment.

Why? Both help lower your energy bills and make your home more appealing if you sell.

Energy-efficient upgrades may also qualify you for tax credits of up to 30% of qualified expenses. So, investing your refund into these improvements allows you to use the money for a beneficial purpose and possibly save on your taxes next year!

What to avoid doing with your tax refund

While seeing extra money in your bank account can make it tempting to dream up lavish purchases, you should consider making smart investments with the extra cash instead. 

To that end, some things you may want to avoid spending your refund on include:

• Unnecessary impulse purchases, such as an expensive watch or a new TV
• A downpayment on something costly that you likely don’t need (think car or boat)
• A pool
• Gambling at the casino or online

While these might seem like fine ideas when you see your refund amount, focus on your priorities first. And remember—the best ways to use or spend your tax refund that we’ve outlined here will positively impact your finances in the long run.