So you worked hard all year…
Congratulations on getting some tax refund money back!
But now is not the time to hit up Vegas and blow it all in one night.
Now’s the time to really think and be smart about what you’re going to do with all that extra cash. You may get a couple thousand bucks back, so why not put it to good use?
Why not crush your debt or do something financially smart with it?!
Take a look at the following 37 examples so that you can use your tax money wisely this year.
The 37 best ways to use your tax refund wisely this year
1. Catch up any due bills or past due accounts
This is extremely important. The first thing you should do with your tax refund if you’re having trouble is get current on all of your bills and past due accounts. If you want to become debt free, you have to be current on everything. If you’re behind, use part of your refund to catch up on every past due bill or account. You need water, power, and food to survive. This is priority one, so use your refund to catch back up so you can start paying off debt.
2. Emergency Fund
The very next thing you need to do is put some money aside for emergencies. If you just got back a great deal of cash, and you don’t have a rainy day fund prepared, it’s time to put some money aside. This emergency money is extremely important and can save you when sh*t hits the fan. A $1,000 starter emergency fund is all you need for starting your #debtfreejourney. If you don’t have an emergency fund, this should be the first thing you do with your money.
Once you have this in place you can start crushing your debt. If you have no debt, you can throw that money towards a fully-funded emergency fund of 3-6 months of expenses. If you would like to learn more about emergency funds, check out Dave Ramsey’s quick guide here on their site.
3. Student loans
Y’all…I HATE STUDENT LOANS. They sucked to pay off and set me back years in financial progress. And if you’re in debt today, it’s very highly likely you have some student loans that need paying off. Lucky for you that your tax money just came back!
Paying off some of your student loans is an awesome way to use your tax refund. The average student loan today, according to studentloanhero.com’s student loan debt statistics for 2022, is more than $37,000 dollars per person in the United States. That’s a lot of dough to owe!
If you have student loans, why not take that tax refund and knock a chunk of it out? All it takes is a little bit of momentum to get you started on crushing all of those loans. Check out Dave Ramsey’s post here called “How to Pay Off Student Loans Quickly.”
If you’re looking to knock out your student loans for good, check out the book, “Destroy Your Student Loan Debt” by Anthony O’Neal here on Amazon. It’s a very practical guide on what you need to do to get those loans gone for good.
4. credit cards
Credit card debt can be some of the most detrimental debt that you could possibly have. Just a couple thousand dollars in money owed could amount to outrageous interest rates and horrid credit scores if not properly managed. Use your tax money to crush those credit cards for good.
The credit score really doesn’t matter, a lot of borrowed money on your credit card could mean that you’re paying back a lot of interest on top of what you already owe. Tax money can help you squash the money owed and get you back in good financial standing. Don’t let credit cards stand in your way if you’re trying to become debt free! Pay them off and cut them up!!
5. payday loans
This type of debt can ruin you. If you owe money on a payday loan, use your refund to pay this off immediately. No matter what you owe, payday loans are used for legalized loan sharking and the interest on these loans can be from 20-100% or more. That means If you borrow $100, you could potentially pay back $100 or more in just interest charges.
John Oliver’s bit (that you can see here) on the evil payday loan industry opened some eyes back in 2014. Also, Netflix has a Docuseries called Dirty Money that shows the grim reality of payday loans in its second episode called, “payday.” The idiots that run these payday businesses are financial predators. So if you have a payday loan, take care of it with your tax money now!
6. car loans
If you owe money on your car, now might be a great time to start crushing that loan with your tax refund. Remember: A car is not an asset. It’s a way to help you get from point A to point B and it’s always losing value. Why stay in debt with something that’s going to keep declining in value?
Let’s take some of that tax refund money and start paying off the car loan to get this debt out of your life. Check out Dave Ramsey’s article, “How to Get Out of a Car Loan,” here on his site.
7. IRS debt
IRS debt is extremely dangerous. If you have any IRS debt, you need to pay it off ASAP. Don’t let this debt hang around because it could mean A LOT of penalties and fines. If you have IRS debt, check out Nerdwallet’s guide to getting rid of it here.
8. Any other miscellaneous debts
We know that debt sucks. That’s a given. But having a bunch of miscellaneous debts hanging around can really mess up your #debtfree plan. So take some of that tax money and pay off any other miscellaneous debts that are left. This miscellaneous category refers to medical debts, furniture debts, or ANY OTHER DEBTS besides the previous five types of debt listed above. Crushing these debts can give you some quick motivation and help you get started in your #debtfreejourney.
For this, and all the rest of your debt, I recommend using the debt snowball method. List all of your debts smallest to largest and start paying them off starting with the smallest, regardless of interest rate. Use your tax refund to start working your way up the debts until you run out of refund money. That’s a really awesome start.
Another great resource for paying off your debt is Dave Ramsey’s book, “The Total Money Makeover.” You can get that here on Amazon.
9. Max out your 401(k) or Roth IRA
If you’re looking for a great way to put your tax refund to good use, throw all of that money into your 401(k) or Roth IRA. As of 2022, according to the Motleyfool.com’s article here, you can contribute up to $20,500 dollars into your 401(k) and $6,000 dollars per year into your IRA. Make sure you’re out of debt, though, and have a fully funded emergency fund of 3-6 months of expenses before you invest that tax refund money.
10. Dabble in Stocks
Now I’ve got to say that I don’t personally invest in stocks because I believe it’s too risky. However, I’m not completely against stocks if you’d like to use a small portion of your money to buy into the market.
But before you do this, I want you to make sure of a couple of things. 1) you’re out of debt 2) you have a fully funded emergency fund of 3-6 months of expenses 3) you don’t invest more than 10% of your of your net worth in the stock market in single stocks and 4) you need to learn and understand the market before just hopping into it. Learn how stocks work and about gains and losses. And just be warned that you could lose all of that money. As long as you’re cool with that, stocks are fine.
If you’d like to learn more about stocks, check out this post here called “10 Great Ways to Learn Stock Trading.”
11. Dabble in cryptocurrency
Crypto is another investment that I don’t really mess with because of how insanely high-risk it is. I mean, with one simple tweet by Elon Musk, a certain type of crypto could shoot up in value or completely tank. But if you’d like to put a small amount of fun money into crypto, go for it! I’d still recommend using the same exact rules that I listed above in #10.
If you’d like to learn about Crypto, check out Sofi’s beginner crypto guide here on their site.
12. Invest in real estate REITs or put money into a sinking fund for a piece of real estate
Your tax return definitely won’t be enough to buy you a piece of real estate but it can be enough to put a little bit of money into REITs. Real Estate Investment Trusts, in which a person can invest in a company that owns real estate, is a great way to dip your toe into the water of real estate investing. This is similar to investing into single stocks as you’re buying a small piece of that property as you put money into this. But just like single stocks or crypto, REITs can be risky. So we recommend that you’re debt free, have a fully funded emergency fund of 3-6 months of expenses, and you don’t put more than 10% of your net worth into this investment. If you’d like to learn more, Investopedia has a great article here on the “Real Estate Investment Trust or REIT.”
Your refund money can also be used to start building a sinking fund to buy into the real estate investing world. We recommend no real estate until you’re debt free and can pay cash for the entire piece of real estate. Yes, that may take awhile, but it’s the safest and smartest way to build real wealth. Oh, and your real estate will cash flow like crazy. That’s one of my big goals in life: Paid-for real estate. This post here from learn.roofstock.com is a great guide for buying real estate for cash.
13. Open a new investment account with the tax refund money as a great initial payment
If you haven’t already opened up an investment account, now is a great time to start! You just got back some money, so take that cash and put it towards your retirement future. It may seem boring to put all of your money into a retirement account, but it will be worth it in the long run. If you’re unsure of how to do this, take a look at MoneyUnder30.com’s article here called “Best Investment Accounts for Young Investors,” and start today.
14. Start a 529 plan for your kids (If applicable)
This is very important and should be part of your bulletproof financial plan. If you have kids, think about using your tax money to either open or contribute to a 529 education plan for college. This qualified tuition plan is designed to help you prepare for your child’s college expenses through a state-sponsored tax-advantaged savings account. This is the way to go if you have kids. Their college years will be here before you know it. The Securities Exchange Commission (SEC) has a great guide here called, “An Introduction to 529 Plans,” which explains everything in detail.
15. Hire an financial planner or investment pro
Sometimes you can’t just do it all yourself. So another great use for your tax money could be in hiring a Financial Planner or Investment Pro to take a detailed look at your financial portfolio. Financial professionals know the ins and outs of investing and retirement, so let them look at your financial plan and advise you which way to go. Why waste valuable time with this? The professionals do this every day and can help you save hundreds of thousands of dollars or more over the course of your lifetime. Just make sure you pay attention to costs and fees. Normally, financial planners will charge you with a sales fee or a small commission from your portfolio. But there are a few who could do a one time deep dive to make sure you’re on the right track. That’s where a couple hundred bucks could go a long way!
Just remember two things: it’s YOUR money and you want to find an advisor or planner who will actually teach you about investing. If they make you uncomfortable or they talk down to you in any way, find another person.
If you’re looking for a great financial planner, who has the heart of a teacher, check out Dave Ramsey’s SmartVestor page here to hook up with a local financial planner who can help you. That’s what my wife and I did and we found a really fantastic local financial planner who has educated us and put us on the right track toward financial success!
16. Buy a complete financial plan and change your financial future
I highly recommend Dave Ramsey’s program Financial Peace University. No affiliate link to that but you can check that out on the Dave Ramsey website here. This plan is tough, but so insanely simple and will easily help you bulletproof your finances.
17. Hire a CPA to adjust your tax withholding/do your taxes
So you might not like what I have to say on this one. But if you’re getting an outrageous tax return, you need to adjust your withholding to where you’re getting less money taken out of your check every month. This means less tax refund, but more money in your check every month. Now if you like getting a small tax refund, that’s fine. But if you adjust your withholding at work, you can have a couple hundred dollars more every month to help out toward your financial goals. That’s what I did a few years back and it was nice to have access to the extra cash flow.
With that being said, you should hire a CPA to not only do your taxes, but to take a look at your specific situation and help you figure out how to maximize your tax situation. If you’d like to find a good CPA, check out Dave Ramsey’s Endorsed Local Providers here for local tax pros and CPAs that can crush your taxes and help you bulletproof your finances.
18. Invest in a new business or startup
Another great way to use your tax money is by investing in a new business or startup. This money can help out a brand new business tremendously and can provide for a huge upside if the company starts doing well. But be careful, because if that company doesn’t make it, you can also lose all of that hard earned tax money. If you’re interested in this option, check out Bankrate.com’s article here called “5 Things to Know Before Investing in Business Startups.”
19. Buy a bike
A bike can be a great investment with your tax refund. Not only are bikes cheap, but an awesome and inexpensive way to get a little bit healthier. Grab a quality bike for around $100-200 dollars. Check out this mountain bike on Amazon. The cool thing is that you should still have a lot left over after this purchase!
Check out decently priced bikes here on Amazon.
20. Gym membership
A monthly gym membership is a fantastic way to spend your tax refund money. With all that cash, you might as well spring for the yearly membership and save yourself some cash. Most gyms are less than $30 per month and you can get a full year at almost all gyms for about $300 bucks if you pay yearly. Why not spend your money wisely by investing it back into your yourself?!
If you’d like to look into this more, check out the krazy coupon lady’s post, “15 Tips to Find the Best Cheap Gym Memberships,” here on her site.
21. Physical needs (your health)
Your health is extremely important. If you’re not healthy, you won’t be able to spend that tax money anywhere. So a great way to use your refund is to take care of your physical health! Use that money for a doctor’s check up or any other medical needs. Some of this can be expensive, even with health insurance, so this is a great time to get your health needs taken care of. Also, make sure you don’t forget about your teeth!
22. Learn a new skill or hobby (that can make you money)
A great way to spend some of that cash is on a new skill or hobby that can bring in extra income. My suggestion is that you learn something interesting or do something you’re passionate about and try to make it into a side hustle. You won’t need to spend a lot of money. Then you can put it to good use and pull in some extra dough.
For example, I really love disc golf. So a few years back, I started DiscgolfNOW.com. At first, I only earned a couple hundred bucks per month. But it soon exploded into a serious side income. Now it’s netting me a couple thousand dollars per month! I had to put the work in, though. It took me four years and hundreds of hours of working and learning to get it where it is today. DollardollarNOW.com is my current project and I hope I can do the same with this site!
23. Start a business
Sometimes the best investments are in your own ability to run a business. Why not take some of that refunded cash and start a business this year? You never know how well something like this could work out. Who knows? Maybe your opportunity can turn into something awesome and allow you to make a considerable income. I’ve started an online blogging business with just a little bit of cash and I’ve seen 100X the profit compared to what I’ve put into it. It took a lot of effort, though.
You can start a physical business as well if you want. A lawn care, pressure washing, or cleaning business takes very little investment upfront to really help you make some money. I did lawn care for a few years and it was really nice to make $30 dollars and hour with just a push mower, a trimmer, and a blower.
If you’d like to start a small business like this, check out sidehustlenation’s post here called “27 Blue Collar Business Ideas: $20-100/hour Starting Today,” to get rollin’.
24. Essential needs
Whenever I get money in a tax return or as a gift, I use it to buy all of my essential items. Stuff like shampoo, body wash, deodorant, toothpaste, and a lot of other things. Normally, I’ll buy all of those essential items so that I don’t have to buy them for the rest of the year. That way I don’t have to worry about paying for them at all. You can get all of these essentials here on Amazon, which is where I usually will get them from.
25. Stock up on bulk items
With inflation at it’s highest levels in decades, one fantastic way to use that money is by buying home essentials in bulk for the whole year. Toilet paper, paper towels, shower cleaner, declogging drain cleaner, steel wool soap pads, and everything else can be bought in bulk, normally for a cheaper price. And you don’t have to worry about buying it again until next year! Me and my wife always get this stuff in bulk here on Amazon.
26. Home updates
A great way to use your tax refund money can be with home updates. These updates, such as new windows, new paint, new flooring, new outdoor patios of decks, or finishing a basement, can all make the value of your home go up, and can help to save you money down the road. Just make sure you pick out quality updates for your home and make sure you’re out of debt before you do this!
27. Buy home utility upgrades
Tax return money can also be spent upgrading the utilities of your home. Take a look at your shower heads, faucets, electrical outlets, bulbs, and anything else that can cost you in the utilities department. Amazon.com can help you upgrade your utilities. Check some things out here on their site. Remember: spending a little bit of money on utilities today can save you thousands of dollars in the long run.
28. Buy needed tools, equipment, or home maintenance items
If you’re in need of some upgrades in the tool or equipment field, use your tax money to buy new, quality stuff that will last you for years. Don’t frivolously buy stuff that you don’t need, though. I’m talking about tools, equipment, and maintenance items that will help you save money in the long run. Items like lawnmowers and weedeaters, hedge trimmers, chainsaws, drills, and other practical equipment that can allow you to DIY all your home projects and repairs. Find what you need here on Amazon.
29. Mortgage
If you currently own a home and are paying a mortgage, taking you tax refund money and putting it towards your loan principle is a fantastic way to build wealth. Think about this – If you got a $3,000 dollar tax return every year for 10 years, and put all of that money towards the mortgage principle, you could pay off an extra $30,000 dollars on your your house! This could potentially allow you to pay off your house well in advance of your 30 year or even 15 year mortgage. Don’t take this tax refund money for granted! Dave Ramsey’s article here called “7 Easy Ways to Pay Off Your Mortgage Early,” has some good ideas on how you can do this.
30. Buy a car with the cash or start a sinking fund to replace it
If you’re in need of a car, take your tax refund money and either buy a car with cash, or start a sinking fund for a new car. Debt is not necessary for your purchase. You can easily save up the money or just buy a car with the cash. The car may not be that nice, but it will be paid for. No payments sounds good to me. And you can keep saving up for something better!
31. Start a sinking fund for a needed big purchase
If you’re in dire need of something big, like a roof for house, a new air conditioning unit, or something important that will cost you more than a few thousand bucks, put all of that tax money into a savings account dedicated to that big purchase.
Don’t be led into believing you have to go into debt for a large purchase. Yes, a roof on a small house is $6,000 to $10,000 dollars or more. But debt is not necessary to fund this purchase. Save your tax money, cash flow some of the purchase, and sell everything you can to pay the cost. As long as you’re not in danger of a roof collapse or no A/C or Heat in the middle of a peak season, you will be fine cash flowing this big purchase. If you have to get this big purchase really soon, use all of your tax money, get multiple estimates, and scrape together whatever you can to find this purchase.
Otherwise, use a sinking fund to save up. For more on sinking funds, check out this post here on Dave Ramsey’s site explaining the sinking fund and what it can do for you.
32. Pay for yearly insurance costs
Insurance costs can be extremely expensive but sometimes you can get a discount by paying for the entire year. Car insurance, homeowners insurance, and life insurance can all be paid yearly. Even if you don’t get a discount, why not just go ahead and pay your yearly insurances off? Then you don’t have to worry about paying them for a whole year!
33. Future fees, costs, and yearly purchases
If you’re a savvy spender, use your refund to take care of yearly fees, purchases, and annual costs. A lump sum of money, such as a tax refund can help you take care of annual spending like Christmas costs, property taxes, or any other fees and costs that you can pay yearly.
34. Future Tax obligations
Sometimes, especially if you itemize your taxes, there may be future tax obligations that you have to pay (like actually paying for your federal and state taxes when you file next year). Getting money back this year never guarantees you will get money back next year. So if you think your taxes may change dramatically the next year, one thing you can do is stash that money away for next tax season. Throw that cash in a savings account and have the money ready for when you need it.
35. Treat yourself (a little bit)
Don’t forget about yourself! If you’ve done really well with money this year, give yourself a little bit of cash to spend. I’m not talking about blowing through $2,000 bucks at the bar. But take a couple hundred dollars and get yourself something nice or take a trip to the beach for the weekend. Just don’t spend all of your money. Also, remember your goals and make sure you have either saved or invested most of your tax refund. Warren Buffett said it best: “Do not save what is left after spending; instead spend what is left after saving.”
36. Donate it to charity
If you’re looking to do some good with your tax money this year, give some of it to a charity. There’s always enough to go around and it can really help a few people out. Giving allows you to maintain an appreciative mindset and an abundance mindset. Check out this article here on, “5 Reasons to Give to Charity,” written by the Charities Aid Foundation.
Just remember this one tip: research your charity of choice and make sure all of your donated money is going toward making a difference. A good reference for this is Lovetoknow.com’s post here on, “What Percentage of Donations Go to Charity.”
37. Find other ways to put it to good use
My final tip for you is a simple one – find another way to put your tax refund money to good use. I’m not talking about blowing it all at the mall. Some people may say, “but making myself happy is putting it to good use!” Well, that’s what we talked about with the Treat Yourself tip in #35. You’re going to treat yourself just a little bit. But with this last tip, all I can say is to find a way to put the money toward something useful or good so that it can help you further your life or you goals. This is easy. Everybody’s got something going on that they need and can use the money for. Need to pay for a $500 dollar dental surgery? Get it done. What about buying a new PlayStation because your old one broke and your game console is how you save money in a variety of ways? I would say go ahead buy a new one. But only if you need it for helping you save money in the long term. That’s the key. If you just want a PlayStation to have it and waste money on videogames, that’s not really a good purchase. The tax money can go somewhere more useful. So use good judgment when looking at what you’re going to use the tax refund money for. If you’re still unsure about buying something with your refund money, here are a couple of questions you should ask yourself:
4 Things to Ask Yourself When Using Tax Refund Money
1. Is it just a want? Make sure what you’re spending money on is actually going to help you save money or further your life goals.
2. Do I need it to help me save money? That money spent doesn’t always have to help you save money, but it should benefit you financially in some way.
3. Will it further my financial or life goals? Make sure you use that tax refund wisely so you can get ahead and get out of debt. Don’t waste all of that cash in Vegas.
4. Will it make me happy in the long run? Think about this one a little bit before you spend that money. Will it really make me happy in the long run. If I spend some of this money on fun, will I be happy I did that in 3 months or 6 months? If the answer is yes, go for it.
Finally
Tax refund season can be a great time to start getting ahead. But let’s not forget that YOU SHOULDN’T BE GETTING THAT MUCH MONEY BACK in a tax return. It was cool to see a huge refund check at tax time. But if you get this huge check, you need to find a way to change your withholding so that you get more in your check and less at tax time. But if you do end up getting a refund, use to for good and don’t waste it away. That’s YOUR money, so use it to crush your financial goals and bulletproof your financial future.
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