So you just got some tax refund money back. Alright, time to go out and spend it all, right?!
Wrong.
If you’ve just got some refund money back, I’m happy for you. But this isn’t the time to spend, buy, and waste. No, it’s time to actually use YOUR money for good. It’s okay to have a little bit of fun with your refund, but you need to make it a priority to use that money for good.
Because it’s YOUR money, not free money from the government.
It’s not free money from the government!
I just want to address this fact. The common misconception over tax refunds is that the refund is just free money that the government gives you around tax time. And this money is expected so that you can buy something nice like a vacation, a tv, or for other miscellaneous spending.
But the money in your tax refund is because of your overpayment of taxes. You paid in too much money, so the government gives some back to you. So you’ve basically loaned them extra money for the whole year, with no interest, and they give it back whenever they decide.
Sure, I mean, you can use it for that stuff I listed above. But would you spend normal money from your paycheck on that stuff? Probably not. So use it for something smart. Because it’s YOUR MONEY.
Alright, so let’s check out all of the ways that you shouldn’t use your tax refund money.
17 ways you absolutely shouldn’t use your tax refund
1. Alcohol or drugs
Spending your entire tax refund on alcohol and/or drugs is one of the worst ways to spend that check. It may also indicate that you have a pretty substantial substance abuse problem if you spend a couple thousand dollars on alcohol or drugs.
A tiny portion (I mean like $20-40 dollars) is fine to use from your check on some alcohol. That’s legal and fine to use if you don’t abuse it. But if you’re even dropping hundreds on alcohol, you might want to rethink what you’re spending on.
Drugs are a different issue. If you’re using any of your money from your tax check on drugs, you have a serious problem and really need to seek some help. In my full-time law enforcement career, I see way too many people addicted to drugs and it all leads to financial and physical ruin.
2. Gamble it away
Another horrible way to spend your refund money is to gamble it all away. Gambling can become an insane addiction if you’re spending thousands on your habit. Whether you go to Vegas, play online poker, gamble with friends, go to local gambling houses, or play the lottery, using tax refund money for this is a terrible idea.
3. Buying a timeshare
Buying a timeshare with your tax refund money is hands down the worst way vacation-wise that you could spend it. It might sound like a good deal up front, and you might even get the first year’s vacation with no issue, but all hell is going to break loose after that. You are going to spend thousands and thousands of dollars over the next couple of years. WAY more than if you just paid for a regular vacation.
Timeshares are absolute cesspools of fees, shady salespeople, contracts that are impossibly hard to cancel, more fees, monthly costs, and frustration. Oh, did I mention the fees? There are so many other cons to timeshares that I could write an entire post on just the negatives alone. But I won’t bore you with that today.
I know two people firsthand that have owned timeshares and the frustration has shown me what a nightmare that these “luxury vacations” can actually be.
4. Blow it on a vacation
If you opt for using your tax refund to go on vacation, my only advice is to not use the entire check to live it up for multiple weeks. Taking a quick trip to the beach for the weekend is fine. But there’s no need for a $3-5,000 dollar vacation when your refund check hits (because you probably can’t really afford this).
I’d encourage you to look at your goals and financial situation before blowing everything you received on a super luxury vacation at the beach. But if you do, pay cash only. Don’t finance anything extra.
5. A fancy cruise
I LOVE cruises. They’re fantastic getaways and can be pretty cost effective. But if you blow you entire tax refund on a 10 day cruise around the Mediterranean Sea, that’s not really the best way to use the couple thousand dollars you got back.
If you do spend your money on a cruise, pay cash and keep it minimal on the expenses front. Oh, and don’t spend more than you received in your refund.
6. Spending it before you even have it
A horrible way to spend your money is to finance every bit of what you’re expecting to get in your refund check. Too many people spend money by borrowing it before they even get the actual money. That’s a bad move. If you’re going to spend it, at least get the money first. Otherwise, DO NOT spend it before you have it. Because most people spend even more than they have causing extra debt. Bad idea.
7. Finance a new car
This is probably the most classic tax refund mistake that you can make. All the big car companies know that tax refund season means “down-payment-on-a-new-car” season. You will see an unbelievable amount of advertising encouraging you to use your tax money on a “good cause.” But this is a horrible way to spend your tax money because it’s only going to pay for a tiny portion of the car.
Unless you’ve got the rest of the cash, you’ll have to borrow the rest. That will cost you thousands more dollars, interest on that loan, depreciation on the car, and years of your life paying it off. Yet another bad financial move.
If you want to buy a car with your tax refund, couple your money with a little bit of cash and buy a decent $5-8,000 dollar car. Don’t borrow a dime. That’s the smart move.
8. financing anything with it as a down payment
If you finance anything else with your refund as a down payment, you’ve just saddled yourself with more debt. If you can’t pay cash for whatever you buy, you can’t afford it. Don’t use your tax refund as an excuse to borrow more money!
9. buying large purchases or luxuries you can’t afford
Don’t use tax refund season as your golden opportunity to spend, either. If you normally can’t afford to buy a large item or luxury purchase, you shouldn’t buy it with your tax refund either.
Examples of this include expensive purses, guns, gaming computers or consoles, luxury “toys,” motorized vehicles, and anything and everything in between. If you can barely afford this with a tax refund check, you can’t really afford these items. If you’re really going to buy something, at least pay all cash for it. Otherwise, don’t buy it.
10. shopping spree
A shopping spree is just a television fantasy that isn’t real unless you win the lottery or are super rich. A couple thousand bucks won’t get you the shopping spree of your dreams so why even try? Don’t waste your refund money this way.
11. buying a huge tv
The most stereotypical purchase you can make with your tax refund is a gigantic television. Whether you get it during tax time or on Black Friday, buying a huge tv on sale is really just a bad purchase. If you didn’t know already, those TVs are normally poor quality TVs brought in for these kinds of sales.
You should find a decent TV on sale during other parts of the year for a few hundred bucks. Don’t waste your refund money on this.
12. buying rims for your car
If there’s a more horrible purchase for your refund money, I probably wouldn’t know it. Well, maybe financing a new car with your refund as a down payment. Seriously, though, buying some high-end rims for your car is just a bad buy. It might look cool to you for a time, but no one else really cares. Plus, the car and the rims are going down in value every time you drive it. Just don’t.
13. investing in a get-rich-quick scheme
There are a million and one get-rich-quick schemes out there. And guess what? They’re all horrible ways to spend your money. Don’t completely waste the thousands of dollars you could potentially get back.
I’ve learned over the years that wealth is not a get-rich-quick scheme. You’ve got to build wealth slowly and surely over time. There are a few who might strike it rich early, but the rest of us have to invest over decades to build up our net worth.
If you just took that $3,000 dollar tax refund and invested it for 30 years with no additional money added, it could be worth over $52,000 dollars or more. If you added just a small addition of $100 dollars per month for all that time, you could have over $250,000 dollars. That tax refund could be the start of something life changing if you put it to good use.
14. putting it into your checking account
This is a huge no-no. If you don’t have any control over your money, that tax refund you put into your checking account is going to completely disappear within a month or two. If you don’t control your spending at all, it’s really easy to justify a bunch of hundred dollar purchases including expensive dinners, tech gadgets, clothes, nights out, and any other miscellaneous “fun.”
You need to have a plan with your money and you need to tell every dollar what it’s going to do. Otherwise, you’ll find that refund becoming a memory of what could’ve been. Put your refund in your savings account and decide what to do with it from there.
15. investing in stocks or crypto
Stocks are a risky investment. Cryptocurrency is even more risky. So I highly encourage you to steer clear of putting money in either one of these options. Putting money in stocks isn’t the worst thing you could do with your refund, but you could lose it all if the companies goes bankrupt (i.e. Enron). With Crypto, you could make a lot of money. But you could lose everything overnight.
So when it comes to investing, you should consider mutual funds, ETFs, or index funds that invest in many different companies. That’s safe and diversified. Stocks and crypto are risky and dangerous. So don’t lose your money!
16. loaning it out to friends or family
Loaning friends and family money in any scenario is a horrible idea. You should NEVER do it. If someone truly needs help, and you’re not enabling them, give them a small cash gift. Tell them that they don’t owe you anything back and that the cash is a gift to help them out.
I’ve had multiple relationships broken due to someone owing me money. Normally if it’s a small amount, my friendship means more than that $50-100 bucks but others just don’t see it that way. So now I don’t lend anyone money for anything. Sorry, y’all.
17. Anything (if you have debt or no emergency savings)
If you don’t have an emergency fund, or you have any debt of any kind (I’m talking student loans, personal loans, car loans, financing on a couch, credit card debt, any other miscellaneous debt), DO NOT spend your refund.
First things first: put $1,000 dollars into a starter emergency fund and list your debts smallest to largest. Then start working your way up that debt list using your refund money. I know this sucks. But you have to get out of debt as fast as you possibly can so that you can start investing and building wealth. This is SUPER IMPORTANT.
What should I do with my tax refund?
If you’ve kept up with me until now, I really appreciate it. But now you’re here and you want to know what you SHOULD do with your refund money. Well, I’ve written another awesome post called, “The 37 Best Ways to Use Your Tax Refund Wisely This Year!” You can check that post out here.
It’s YOUR money, be wise with it!
Tax season can be crazy. A lot of people getting a lot of refund money back and most of it is wasted. I don’t want you to be that person. If you do continue getting a tax refund, make sure you actually put it to good use because, again, it’s YOUR money.
If you can, try to adjust your withholding to where you get more money in your paychecks and nothing (or very little) at tax time. That way, you can actually use that extra money every month for some good like improving your personal finances and bulletproofing your financial future.