7 Smart Ways to Spend Your Tax Refund

It’s that time of year again! W-2s are coming in the mail, which means you’ll have to file your taxes soon — and we all know the best part of tax season is getting that refund check in the mail. If you’re like me, you can’t wait to hit up your local Sephora to splurge on all things Urban Decay. But if we’re honest with ourselves, is a guilty pleasure shopping spree really the best way to spend all that extra cash?

I’m not saying you have to spend all of your tax refund responsibly, but at least a portion of it could go toward some financial goals to relieve some stress — which is ultimately better than rocking a badass new lip color for a few weeks and then forgetting all about it.

1. Pay Off Credit Card Debt

Having credit cards isn’t necessarily a bad thing—but drowning in debt can be. According to Credit Summit, although credit card debt plummeted during the early days of the pandemic, in 2021 it shot up to $8,701 on average per household. Ouch.

It may not be the most fun you can have with your tax refund, but paying off some of your debt can definitely lift a weight off your shoulders. Not only are you putting money toward the principle rather than the interest, you’re also creating a gap for emergencies. If your car breaks down (or if you want to take a last minute weekend trip somewhere tropical), you can do it without worrying about paying your credit card bill for a month or more.

2. Pay Off Your Student Loans

Thinking about your student loans is no fun—trust me, I know. I hate thinking about all the money I could have saved by skipping all those pointless gen-ed classes. Unfortunately, I have to pay for those (and the rest of my college education) once a month, and it takes a huge chunk of my monthly budget.

Using a portion of your tax refund to put toward your student loans is a great plan for a couple of reasons. Like the credit card debt, you can get a little bit ahead and not have to worry next time you have an emergency. Second, when you pay a big chunk on your principle, you could be cutting down your 10-year sentence significantly.

3. Build or Rebuild Your Emergency Fund

Saving money can be tough, especially for us twenty-somethings literally just trying to keep our heads above water (hello, credit card debt and student loans). On top of that, a lot of us have auto loans, are saving up to move or buy a house, or (let’s be honest) spending way too much money online shopping. These things can really get in the way of worrying about even having an emergency fund, much less remembering to contribute to it regularly.

But any financial advisor will tell you that there are about a dozen and one reasons everyone should have a savings account with money to fall back on in times of crisis. You don’t need to save thousands, but having at least a couple hundred dollars in the bank is a good thing to fallback on for things like car repairs, surprise trips, and other unexpected life events that put a huge dent in our budget.

4. Get Dental Work

We all put off going to the dentist. The drill, the smells, and the numbness aren’t fun — but it’s important that we take care of our teeth. There have been several studies that link poor dental health to poor overall health, which means the pain you’ve been having in your tooth could be more than just a nagging issue.

Filling a cavity isn’t cheap, but your tax refund can make the $50 to $250 payment seem like no big deal. Plus, your mouth will thank later. Taking care of the cavity now can prevent a root canal or tooth removal — which is way more complicated (and expensive) than a simple filling.

5. Maintain Your Car

Living a busy lifestyle makes it pretty important that you can count on your car to get you from point A to point B. Repairing or upgrading features of your vehicle can be extremely expensive, but sometimes it’s worth it to spend the money.

Your tax return can be used to purchase that new set of tires you’ve been putting off for months. Not only will that improve your car’s safety, it could also affect the performance. That poor gas mileage you’ve been complaining about could be the result of bald and worn down tires.

Smaller accessories are also a sound investment. A windshield sunshade can block the sun from beating down on your dashboard, which can cause warping later in your car’s life. You can also get mats for every seat in your vehicle to decrease the amount of cleaning and protect the carpet from wear and tear.

6. Buy Gym Equipment

I personally hate going to the gym. People see me getting sweaty, and I always feel self-conscious about the way I look (I mean what if I’m not using the machine right?).

The perfect solution: using my tax refund to buy my own gym equipment so I can work out from the comfort and privacy of my own home. And the best part? I can literally wear whatever I want, like that ultra-comfy shirt covered in rips that probably should have been thrown away years ago.

Plus, I can catch up on the latest episode of Scream Queens, Always Sunny in Philadelphia, or The Vampire Dairies in a judgment free zone.

7. Invest in the Stock Market

The stock market may have been a thing of mystery when you were younger, but now is the perfect time to start dabbling in investments. With just a few hundred dollars, you can change your tax refund into a sizable amount to spend later in your life.

Even though it’s several decades away from now, you can even use the stock market to save for your retirement. Sure, you could spend your tax refund on the new Too Faced Sweet Peach palette now…or you could be sipping martinis in Hawaii after retirement. Which sounds sweeter?