How can you spend your tax refund wisely?

Tax season is in full swing. As some people get ready to write Uncle Sam a fat check, others look forward to receiving a refund.

According to the IRS, the average tax refund is $3,182. A recent survey of Americans getting refund checks this year showed that many plan to pull their money toward a vacation or other splurge, while others will use their money to pay off debt or build up savings. (Although, obviously, there’s also a strong argument that if you’re receiving a big refund, you’re doing something wrong.)

It’s your money, so you’re free to do whatever you want with it, but keep in mind that not every purchase is a wise one. That’s why we’ve rounded up some ways you should not spend your tax refund.

Let’s get started!

1. Spend your tax refund on unnecessary purchases

You might view your tax refund as an excuse to go shopping and buy electronics, clothing, or shoes. However, according to experts, this is a really bad move, and you shouldn’t spend your tax refund this way.

They also point out that one of the worst things someone can do with that money is to use it for a vacation or blow it on other stuff, especially if you’re sitting on a mound of credit card debt.

This doesn’t mean that you cannot have fun with your money, but make sure you’re responsible and reasonable. If you’re dealing with money problems and need to boost your financial health, spend your tax refund on something that may help you.

For instance, a tax refund can help increase cash reserves or help you pay down a credit card.

Although a vacation or shopping spree is enjoyable, you’ll pay for it—pun intended—later, when you’ll still be financially stressed and forced to come up with other trade-offs throughout the year.

2. Deposit your tax refund into a low-interest account

Having your tax refund deposited into savings can grow your emergency fund. But look for a return as high as possible while still securing your money.

Compare savings accounts, and you’ll discover that interest rates can be as low as 0.01% of the annual percentage yield. We’re talking about pennies here compared to what you can earn with a good high-yield savings account.

If you want to keep your tax refund in a checking account, the same rule holds true: instead of depositing funds in a regular checking account that doesn’t earn interest or a penny, compare rates and open a checking account that pays interest.

If you plan to spend your tax refund on other things—such as saving for retirement—consider moving beyond a savings or checking account and looking at investments like bonds and stocks, which can offer you even bigger returns, albeit with higher levels of risk.

For example, if you get a tax refund of $2,800 annually, investing this money at 6% compound interest each year will yield around $250,727 over 30 years.

3. Receive your tax credit on a gift card

Refunds arrive in many different forms. Some people wait for their checks to arrive in the mail, while others put their tax refund on a gift card. For instance, if you use H&R Block tax software and put a part of your refund toward an Amazon gift card purchase, you’ll get a 10% bonus from H&R Block.

Although this is convenient and simple, it can be a dumb way to spend your tax refund, especially if you lose the card. For a safer alternative that doesn’t restrict how you spend the money, ask to have your tax refund directly deposited into your bank account or receive your money the old-school way: through the mail.

4. Lend your tax return to others

If you’re generous and hate to see others in need, you might be more inclined to help friends or relatives financially. While your intentions are good, think twice before handing over your cash. Above all, consider whether you’re in a financial position to be someone’s private lender.

In the end, it’s your decision. Just keep in mind that it’s not your responsibility to solve another person’s money problems, regardless of how much of it you have in the bank.

Some experts recommend even making it a policy to say no to family and friends asking for money. While they admit it may sound strict, they also point out that lending money can cause issues in the relationship and put you in a hard spot financially.

The tax refund you get is nobody’s business but your own. If you don’t talk about it, you’ll reduce the chances of encountering freeloaders.

Of course, refusing a request for a personal loan doesn’t always come easy. If you decide to lend money, make sure you understand the cons of lending to friends and family. Give only what you can afford to lose.

Keep reading to find other ways you shouldn’t spend your tax refund!

5. “Invest” it in a depreciating asset

With an extra $1000 to $3000 in your pocket, it might seem practical to spend your tax refund on a car or boat. But that’s not smart. According to financial experts, one of the dumbest ways to use an income tax refund is to spend it on a depreciating asset that needs a good deal of maintenance and general upkeep.

Before spending cash on something like this, consider the entire financial picture. Consider the cost of personal property taxes and insurance. And if you’re thinking about a boat, don’t forget the cost of storage, licensing, and a trailer.

6. Take your refund to a casino

With extra money in your pocket, you might tell yourself it’s fine to head to a casino to try and double or even triple your money. However, if you hope to spend your tax refund like that to make money, a casino is one of the worst places to turn a profit.

According to experts, although this short-term fun can be tempting, using your tax refund on a trip to the casino isn’t the smartest move. Yes, gambling away your tax return may yield results, but more often than not, you’ll lose every penny. You definitely don’t want that to happen, and it’s not worth the risk.

7. Fill your house with things you’ll never use

You might think you need an expensive juicer, a new piece of exercise equipment, or a high-end coffee maker. But if they just lie dormant after one or two uses, then it’s not worth it to spend your tax refund on them.

It’s a better idea to put your money somewhere it will grow so you can afford to purchase the household items you really need.

By the way, here’s a guide if you need some help with filling out your taxes!

8. Use it to buy a swimming pool

Believe it or not, some people use that refund to buy a swimming pool.

Summer is right around the corner, so you might as well be tempted to spend your tax refund on installing a swimming pool in your backyard. But do so, and chances are you’ll get more than you bargained for.

A swimming pool can add more liability coverage to your insurance and may lower your property value. But that’s not all; you have to take into account the cost of ongoing maintenance. A smarter way to spend your tax refund is by upgrading or fixing things that increase your house’s value.

Additionally, consider refinancing your home and getting a lower mortgage rate. Your tax refund can go toward covering the closing costs.

If you liked our article on ways to not spend your tax refund, you may also want to read How to Boost Your Budget for Medicare, Property Taxes, and 5 Other Hacks.