The 10 Worst Ways To Spend Your Tax Refund (and What To Do Instead)
Tax season is upon us. And while that fat refund check might feel like free money when it hits your bank account, just remember: How you spend it now can determine whether you’ll be kicking yourself later or patting yourself on the back. Instead of blowing it all on frivolous purchases or sketchy “get rich quick” schemes, use that cash to set yourself up for real, lasting wins.
Here are 10 terrible ways people waste their tax refunds, plus tips to help you make smarter financial choices.
1. Lottery Tickets
It’s tempting to dream big with a stack of scratch-offs, but statistically you’re more likely to get struck by lightning 300 times than hit the jackpot (depressing, we know). Instead of throwing away hundreds of dollars on near-impossible odds, take that same money and dip your toes into investing. The best part is that you don’t need a fortune to get started — even $200 in an exchange-traded fund (ETF) or crypto profile can teach you about market movements while actually having growth potential.
2. Luxury Purchases You Don’t Need
That shiny new designer watch (or vintage timepiece) might give you a quick dopamine hit, but buyer’s remorse hits harder when you realize it didn’t actually improve your life in the long run. A smarter play? Allocate a small portion (say 20%) for something fun, then put the rest toward something with lasting value, like paying down high-interest debt or starting an investment portfolio.
3. Ultra-Swanky Vacations
Bestie, let me hold your hand while I tell you this, but blowing your entire refund on a lavish trip when you’re living paycheck to paycheck is financial self-sabotage — and will only come back to bite you in the wallet later on. Instead, consider planning a more modest getaway that’s within your means. You can even put part of the money in a savings account to fund future travels.
4. Upgrading Your Phone Every Year
Are you dropping thousands of dollars every year on the newest iPhone? You might as well just set your money on fire. If your current phone does everything you need — calls, texts, doomscrolling — why drop $1,000+ on a slightly shinier version that offers only minor upgrades? If your phone truly needs replacing, consider buying a refurbished model and invest the difference. Or better yet, keep your current phone and put that cash toward something that actually improves your life long-term, like starting an online side hustle or dabbling in lucrative hobbies.
If you absolutely must have that new phone, be sure to at least sell your old one so you can make some money off it.
5. Dumping It Into a Shady Side Hustle
That “guaranteed” passive income course or sketchy MLM scheme will happily devour your refund and leave you with nothing but regret. Instead, invest in real skills like a professional certification, online course, or quality tools that can help you establish a legit side gig. Unlike pyramid schemes, gigs like photography or freelancing can pay off long after your refund is gone.
6. Loaning It to a Friend
“Bro, I’ll pay you back next week” often turns into radio silence. If you must help a friend or family member in need, treat it as a loan — not a gift — and only give what you can afford to lose. Better yet, offer to help them budget or make extra cash in other ways instead of enabling bad habits. Word to the wise: If you wouldn’t happily loan them the cash, then it’s probably best to avoid getting involved. Chances are, you won’t see that money again, and it can sour or ruin a friendship in the process.
7. Falling for a Timeshare Scam
These “exclusive ownership” and “dream vacation” pitches sound great on paper, but they often lock you into a mountain of fees and restrictions with no real upside. Instead of getting roped into a scammy contract with multiple people, put that money into a dedicated travel fund or opt for contract-free platforms like Airbnb and Vrbo. No contracts, no regrets.
8. Gambling It Away
While playing with high-stakes at the casino can be a thrilling experience, remember that the house always wins. Sure, you might get lucky once or twice, but casinos are able to stay in business because the math is on their side. If you love games of chance, take a poker or blackjack skills course instead of just throwing money away at the blackjack table.
9. Financing a New Car
A $30,000 car loan on a rapidly-depreciating asset? Hard pass. Instead, consider upgrading your current whip by detailing the interior, fixing any small issues, and stashing the rest in a “future car fund.” Trust us: Paying cash for your next ride will feel so much better than being stuck with monthly payments and interest rates.
10. Letting It Rot in a Traditional Savings Account
Unbeknownst to many people, money sitting in a traditional savings account loses value every year (thanks a lot, inflation). To counter this, consider transferring your money to a high-yield savings account so you can make some extra cash on interest. But if you want real growth, investing a portion — even in low-risk index funds — can help your money compound over the years.