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.
To stretch your tax refund dollars further, invest it into your budget, then make everyday purchases through a RaiseRight program. Simply shop online to earn, or buy gift cards for brands you shop at. 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.
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).
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:
When you pay these debts down, you’ll owe less on interest, allowing you to take more control over your finances.
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:
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.
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!
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:
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.
Before that tax refund hits your bank account, ensure you have a plan for how you intend to divide it. Whether you want to put it towards your child’s tuition or extracurricular activities or invest in your emergency fund, spending the money wisely will help you make the most of it.
At RaiseRight, we know that every dollar counts. That’s why we recommend funneling your everyday spending through RaiseRight, so you can earn money every time you shop. Plus, there’s no limit on how much you can earn.
Get started for free today, or check out our other money-saving blogs for more budgeting tips.