5 Smart Ways to Use Your Tax Refund to Invest in Yourself


It’s easy to get carried away spending your tax refund—especially if it’s larger than you expected. But there are some ways of using that money that are more beneficial than others. Investing it in yourself can pay off in the long run.

How much money are we talking about? As of March 14, the average tax refund this year is about $3,000, consistent with the average this time last year. People eligible for the Earned Income Tax Credit could receive more than twice that.

Experts say the best way to make your refund work for you is to identify financial insecurities that could use the help, like credit card or student loan debt.

“Take a look at your personal finances and see if there are any ways these dollars can be used to help you from a holistic personal finance angle,” says Sean Stein Smith, a certified public accountant and a member of the American Institute of CPAs’ National CPA Financial Literacy Commission.

Having good financial standing eases daily stress, says Leslie Thompson, managing principal at Spectrum Management Group. “When you get a lump sum or something unexpected, which in a way could be a tax refund, you’d be mentally better off being more purposeful in how you spend it,” she says.

Here are some ways you can use your tax refund to improve your bottom line.

1. Pay down debt, starting with high-interest balances

Prioritize balances with high interest rates, says Smith. That will help you knock out the debt faster and pay less in interest overall. Managing debt will also help put you in a position for other big money moves, like buying a house. “It’s going to lower your outstanding debt, which is going to over time improve your credit score and in turn make it easier for you now and going forward,” says Smith.

Just under half of Americans have credit card debt, and almost 20 percent estimate it will take more than three years to pay it off, according to a survey of 1,000 credit card users by real estate data company Clever. According to the survey, spending on groceries was the top contributor to piling up debt.

2. Build an emergency fund

Having extra cash set aside for an emergency will put you at ease. You don’t have to use your entire tax refund to begin an emergency savings account—start with $500 and build from there. Whether that unexpected expense proves to be a medical bill or a new car transmission, Smith says, having money set aside will protect you from having to take on debt.

3. Make home improvements to increase resale value

Carefully considered, the right remodeling project or catching up on needed repairs can boost your home’s value when you eventually sell. You don’t want to let things fall by the wayside, says Thompson. There is a general understanding that homes with damage, even if it’s minor, will sell for less than a home without issues.

You don’t want to wait to deal with damage repairs when you’re trying to sell a house. Issues with the foundation could be a deal-breaker for buyers, for example. But HomeAdvisor estimates that repairing a minor crack could set you back as little as $500.

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4. Expand your skills by enrolling in a class

If you have the time, Smith says, sign up for classes or seminars to brush up on skills or learn a new one. Those learning opportunities could put you in a better position to ask for a raise or land a better-paying job—or provide needed stress relief from work. “Try to harness these tax refund dollars to help you improve yourself now and going forward.”

LinkedIn found that employers in 2019 are looking for candidates with hard and soft skills, with the most in-demand skills including time management, analytical reasoning, and UX design. Building up such skills (or those most needed in your particular field) could help set you up for future success at work.

5. Take a vacation to refresh your mind

While weekends are a much-needed break from a long work week, it is usually not enough to combat built up stress: 66 percent of full-time American employees say they do not have a work/life balance. Using part of your refund on a trip will refresh you and let you regain focus, says Thompson.

When it comes to spending, studies have found, using your cash on experiences can make you happier than if you buy stuff. Taking time away from work will have a direct impact on your mood when returning from work—you’ll be recharged and more productive. “While vacation could sound luxurious, it can be a reset,” says Thompson.