7 smart ways to use your tax refund in 2026 / 69

If you’ve ever gotten a tax refund and thought, “Wait… is this free money?” — you’re not alone. In this episode, we’re unpacking why refunds feel like a bonus (even though they’re not), and more importantly, how to actually decide what to do with that lump sum in a way that feels good and makes sense for your life.

We walk through seven different ways you can use your refund — from covering immediate needs to investing, spending on convenience, or even doing something purely for joy. Along the way, we talk about the “interest-free loan to the government” concept, why debt payoff doesn’t have to be all-or-nothing, and how to think about your options without pressure or perfection.

✨ Episode Highlights ✨

[00:00] Why tax refunds feel like “extra” money (but they’re actually not)
[02:00] What a tax refund actually is
[03:30] The “interest-free loan to the government” concept
[04:00] Option 1 — use your refund to stabilize your life
[05:00] Option 2 — spend on things that make life easier
[06:30] Option 3 — how to think about paying off debt (without extremes)
[09:00] Option 4 — using your refund to invest (including a Roth IRA tip)
[10:30] Option 5 — using your refund for joy and hobbies
[13:30] Option 6 — combining multiple approaches (you don’t have to choose just one)
[14:30] Option 7 — waiting and letting your refund sit before deciding
[16:00] 3 simple questions to help you decide how to use your refund

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Transcript

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SPEAKER_01 0:29

Hey girlies, today we're talking about tax refunds and more specifically, what to do with one if you receive one.

SPEAKER_00 0:37

Tax refunds are kind of funny because they can feel like this random little financial gift that has just fallen into your lap and suddenly you're like, wait, what do I do with this thing? Should I be responsible with it? Should I save it, invest it, use it to fix my life, buy something fun? Like, what's gonna be my move here? And so if you have gotten a refund this year, um, or you are expecting one, or you just want help thinking through what to do with a random lump sum of money, we wanted to do a quick little episode just to just to give some ideas your way that you can choose from. Let's dive in.

SPEAKER_01 1:18

Are you drowning in money questions but too embarrassed to ask? Tired of scrolling endlessly through conflicting financial advice that leaves you more confused than when you started? Welcome to the Finance Girlies Podcast, your cozy corner for all things finance.

SPEAKER_00 1:33

I'm your host, Emily. And I'm your host, Kathy. We're both finance writers for brands like Forbes Advisor, USA Today Blueprint, and Yahoo Finance. Throughout our careers of personal lives, we have come to one realization. When we keep our money worries to ourselves, we end up feeling alone. That's why each episode we tackle those burning questions you've been afraid to ask with no judgment, no jargon, just real talk about real money. Ready to finally get answers? Let's dive in. Okay, so before we get into what to do with a tax refund, we want to spend like two minutes talking about what it actually is because I think this is one of those things that people kind of understand, but not fully.

SPEAKER_01 2:15

Yeah, I know I didn't the first time I got a tax refund. So when you get a tax refund, it basically means that you paid more in taxes throughout the year than you actually ended up owing. And usually this happens because of how your paycheck is set up. Your employer is estimating how much to withhold for taxes each pay period, but it's not always exact.

SPEAKER_00 2:37

So if your employer ends up withholding too much money, you get money back as a refund. And if they withhold too little, you end up owing money when you file your taxes. And usually it feels safer to get a refund because you know you get money back. But the trade-off is that if you're getting a really big refund, then that means you're overpaying all year. So you kind of want to hit this sweet spot where like maybe you get just a little bit of money back, but for the most part, you are kind of cutting close to even.

SPEAKER_01 3:03

Yeah. Another way to think of a tax refund or like overpaying taxes throughout the year is you're essentially giving an interest-free loan to the government because that was your money that you gave them that you didn't have access to throughout the year. So if say you overpaid a hundred dollars a month and maybe you get a $1,200 refund, that's $100 out of your paycheck that you should have had all along that you could have put towards saving or investing or paying off debt, um, or just adding a little bit more room to your budget. So that's kind of why ideally you want to get as close to zero um as possible.

SPEAKER_00 3:46

But once again, this is kind of all in theory and in real life, people do get big refunds quite often because it's so hard to try to like finagle all of the deductions and stuff on the back end to to come up even. I think with that, let's get into a few ideas.

SPEAKER_01 4:02

Okay, so the first idea we want to give you um is to use your tax refund to stabilize your life. So, what we mean by this is using this kind of influx of money to address whatever part of your financial situation feels like it needs some attention. So maybe this means beefing up your emergency fund, like say you drained it earlier in the year and you need to refill it. Um, or maybe it's paying for that car repair that you've also been putting off but know needs to be done. Or maybe it's just like a medical bill that you received in the mail that you're like, how am I gonna pay for this? And you haven't quite figured that out yet.

SPEAKER_00 4:45

Yeah, I think you you know pretty quickly, like, are there any like big holes that I need to fill in my life? Like financially. Can this tax saving act as one of those uh what's the brand where you like slap the huge thing and there's like the big jug of water and you, you know, the the infomercial where he slaps the do you understand? No. No, I don't think so. Okay. The tax refund can act like um duct tape, you know. It's like it's like what leaking hole can you patch first with this refund. So you can start there. Yeah, using your tax refund in this way is not always like the most exciting or the sexiest thing because a lot of times we would rather be planning a trip or investing the money or doing something else. But taking care of your most immediate needs does pay off in a different way. And so it kind of gives you some emotional ROI because you can breathe a little bit deeper, breathe a little bit better. And so, yeah, if this is what you use your your refund on, that is really great. Yeah.

SPEAKER_01 5:42

Option two would be to use your refund to help you answer the question, what would make my life easier right now?

SPEAKER_00 5:49

I think so many times, like if you're in a really busy season of life, for example, you I mean, there are only so many things you can focus on during the day. And so you might find all of these little things kind of slipping through the cracks. So in your quest to determine what would make my life easier right now, that could look like hiring a house cleaner if you feel like the cleanliness of your house is kind of falling on the back burner. It could be doing HelloFresh or a mealbox delivery of some kind because you're super busy at work and you know, feel like that might be a little bit better or less expensive than takeout. Or maybe you hire extra child care or babysitting help temporarily or a lawn care or something like that.

SPEAKER_01 6:28

I think the difference is like some of these things like hiring a house cleaner or like subscribing to a meal subscription box, those might feel a little bit like luxuries or you know, like it's it's not a bill that's like overdue. But I think giving yourself permission to use this windfall in that way, if it makes your life easier, similar to the last option, like that is an ROI in its own way.

SPEAKER_00 6:55

I will say there was a really busy season in my life where I had a house cleaner who came every two weeks. I did do a meal delivery kid service, and long care came once a month and living the high life. It it no longer feels worth it to me now in this season of life, but it did feel worth it then. So if it feels worth it, don't question it if you can afford it with your refund. Uh, just do it. Okay. Your third option on what you could do with your tax refund is to use it to pay down debt. And we do want to give a few caveats here uh because it's not really an all or nothing kind of way. Emily and I have done uh podcast episodes on how we view debt, and we do not view all debt as bad debt. There is there can actually be healthy kinds of debt. So we also don't want you to think like, I got this tax refund. Every single dollar that I have of it must go toward my debt immediately because there are kind of some underlying questions you need to think about first. And I think the main one is like, is this high interest debt or is it low interest debt? Because if you have high interest debt, you most definitely might want to take your tax refund and put it toward that balance. So it can be a really impactful move. It can save you a lot of interest, it can give you some breathing room, it can help you get back on your feet. A lot of good can come from it. But I will share a story about, I tell this story quite a bit about how I spent almost a year paying off my car loan that had a 2.99% interest rate when I really could have been using that extra money for something better, like investing or something. But it just felt like something I needed to do because all of the advice that I was handed was like, you absolutely must be debt-free. And so if you do have debt with very low interest rate and the payments feel manageable and stuff, you might be better off taking that debt or taking that tax refund and putting it towards something better.

SPEAKER_01 8:40

Yeah. And it's like like any of these options, you don't have to go all or nothing. Like you could make one extra car payment and like use the rest of your refund in another way. So don't feel like you have to go all or nothing with this. Sometimes it's less about like the actual numbers and more about like the relief you would feel. Like, would you feel some sense of relief if you like made an extra car payment? So like one month when things are tight, you know, you don't have to worry about it. Give you excitement to know like your debt payoff date is like a month sooner. I don't know. It's up to you. So again, less about like a strict rule and more about what feels good for you and your budget and like your mental state.

SPEAKER_00 9:22

Okay, so now that we have talked about using your refund to make your life feel more stable and potentially using it to pay down debt, the next option is one that we obviously love because we just did a workshop on it. And that is using your refund to invest.

SPEAKER_01 9:37

Yes. So a tax refund can be a great way to start investing because it's money that it it almost feels like free money, even though as we covered earlier, it's it's not, but it's money that you unintentionally set aside and are receiving it all on this one lump sum. So like if you've been struggling to set aside money to invest, this is like almost like a free ticket to get started.

SPEAKER_00 10:05

It's also money that you don't have assigned anywhere, you know? So it's like it's not, it's not in your budget. Like you can do whatever you want. So I think it can be an amazing way to like beef up or kickstart your investment journey. If you are already investing, but you haven't maxed out your accounts for the year yet. For example, say you have a Roth IRA, um, you could take your refund and use it to max out that account. And just as like a little side note slash cool thing that you might not be aware of, the deadline to contribute to an IRA is actually the tax deadline. So, like for the 2025 year, for example, you have until April 15th, 2026 to max out that old account. So you could technically file your taxes before April 15th if you got your refund before April 15th, turn around and use it to max out your Roth IRA for 2025. And then you could still have your full contribution limit for 2026. So just a little like pro move to slip in there.

SPEAKER_01 11:03

Okay. Option five is to use your tax refund for something that's just kind of fun and that matters to you. This is kind of like a reminder that not every dollar you earn or receive has to be optimized, which can be really hard to remember when you're like intensely focused on paying off debt or sticking to your budget or anything like that. So if you've been in a season where money has felt tight or stressful, it's okay to use some of your tax refund for something that just like gives you a little bit of joy and helps you have fun.

SPEAKER_00 11:34

Yeah, I think back to the episode that we just did with Michelle Malwer where she talks about helping her clients. She's a money coach, and she talks about helping her clients use their money to tap back into their desire and imagination. And so this feels like a really good spot where where you could do that to be like, what is something that I've always wanted to do, like a hobby that I've always wanted to nurture, but I haven't felt like I could have given myself permission to do that. And so one personal example that I have is that I just recently bought like a physical camera again. Up until this point, I've only ever used my phone. I didn't pay for it with my tax refund. But also, if I had a tax refund, I would have very gladly used it. And that would have felt like money well spent to like give myself this little gift to nurture this more like imaginative side of me that I'm like trying to tap back into.

SPEAKER_01 12:28

Okay, I'm trying to think of what I would use it for for something fun. I always love a trip, so I can see myself using it for that. Or, and I know this wasn't your jam, but I also have wanted to try pottery for a long time, and I know there's a studio in town that people love. So maybe it'd be something like that.

SPEAKER_00 12:48

Yeah. Yeah. Like I I have so many hobbies. I would also really love this is kind of like an outlandish thing that I haven't said out loud to too many people, but I would love to sign up for like a 10-week dance class or something where you like learn how to do hip-hop moves or something. And like, what better way to treat yourself if there is some weird little hobby that you wanted to nurture than to like use part of your tax refund? That feels like such a beautiful gift to give yourself.

SPEAKER_01 13:17

Mm-hmm. One idea I had this winter, and this was before the Olympics, but the Olympics actually like added to the idea, is I think it'd be so fun to take ice skating lessons. Because I'm so bad at ice skating, and every time I do it, I'm like, dang, this would be way more fun if I was better at it.

SPEAKER_00 13:35

Yeah. I've thought about like roller skating. I always get confused on the difference between roller skating and rollerblading, but like roller skating lessons at a roller rink, just to be able to do that better too. I'm like, I Do they do that? Yeah, they do.

SPEAKER_01 13:49

I had no idea. Okay, so one more thing on this note. If you think this is how you'd like to spend at least some of your tax refund and you're struggling to like figure out actually what to spend it on, instead of like letting the algorithm determine what you should spend it on and being influenced and everything else, just try going inward and asking yourself the question, how can I add more joy to my life? I love that question.

SPEAKER_00 14:17

Ask it to myself every single day. And then on that same note, just as a reminder, that you can do a mix of any of these things, like truly your refund is yours to split up and divvy however you want to. So you might decide, I'm gonna put $500 toward this credit card that I have, and I'm gonna use another $500 to like start investing for the first time. And then I'm gonna use the other $500 to do something nice for myself. And however you decide to use it is totally okay. Like as long as you are doing something that feels balanced, feels good, feels in alignment with like you and your goals.

SPEAKER_01 15:01

Yeah. And one more bonus option I want to throw out. I know that like sometimes when you receive a big windfall of money, whether that's a bonus or a tax refund or something else, there's almost like this pressure of like, I have to spend this in the right way. I have to make the most of it, I have to optimize this money. And sometimes that alone can be really overwhelming and you almost feel like you're in a panic to do something. But also, if this happens to you and you don't know right away what you want to do with your refund, you can just put it in a high yield savings account and let it earn some interest. And then like give yourself a reminder to revisit this decision in like a month or two, and maybe you'll have more clarity about how to use it then. There's no reason you need to like go ahead and spend it right away.

SPEAKER_00 15:46

Such a good reminder. And then also, like if you are getting a very big refund, just a reminder too that you might want to with you might want to adjust your withholdings and you can do this. It's like your W for form, and you can usually just contact your HR department and adjust it a little bit and see if maybe the next year you um don't get as much back. Hopefully in exchange for that, your actual paychecks that you get month to month will feel a little bit bigger too.

SPEAKER_01 16:15

Yeah, and don't panic, it's not like an urgent thing you need to fix. It's not required. But if you're curious, it might just be worth looking into over the next few months. Okay, to wrap this up and kind of help you decide how you might want to use a tax refund that you may receive, we have a few questions for you to think about. And they are what would reduce my stress the most right now? What would move me forward financially? And what would make me feel excited or taken care of?

SPEAKER_00 16:47

I think these are three excellent questions. And out of curiosity, I want to ask if you were to receive a tax refund right now, what would you do with it to reduce your stress, move forward financially, or feel like you're taking care of yourself? How much would it be? I feel like I have to know. Let's say the tax refund is three thousand dollars. Ooh, okay.

SPEAKER_01 17:07

I'm the kind of person that would vote on it, would want to think about this for a while, but I'll just kind of spitball an answer. I would probably set aside like five hundred for um just like fun experiences or travel. 500 for this is like funny to say, but because I keep going back and forth about whether or not this matters to me, but I think it does. I think 500 or so to like investing in clothes that I really like. It's just something I've never given much thought to and like never feel like I want to build into my budget. And then I think the rest, the 2000, I would split between investments and saving for a house.

SPEAKER_00 17:54

Okay. What about you? Oh, I like how specific you got. Yeah, you were like 500 here, 500 there. I would take $500 and use it for something fun, like the hip hop dance class or something. I uh the lease me was $2,500. I would probably take $1,500 and use it to top up some of my accounts in my budget, like my travel fund, for example, top it up a little bit. My sinking fund category, top it up just a little bit, and then I would invest the other thousand dollars in my retirement account.

SPEAKER_01 18:30

I like how we both split it up. Like that's what I always tend to do when I get like a windfall of money. It's like a little bit here, a little bit there. I don't know.

SPEAKER_00 18:39

I think I will change Yeah. In years past I've been an all or nothing kind of person. I've been like, I'm gonna put this all toward this loan or all into the emergency fund. But I have never been that way. Yeah.

SPEAKER_01 18:55

Although sometimes I feel like that is you know, in the right situation like that might be the best thing you can do.

SPEAKER_00 19:02

Yeah. I have not received a tax refund in multiple, multiple, multiple years. Same. Yeah, but especially when I was in college and stuff, I'd be like, you're gonna go all toward my student loans. Hmm. We're all toward my emergency fund or something. Mm-hmm. So all right. Well, with that, girlies, to all of you who get a tax refund this year, we hope one of these ideas jumps out at you. And if you end up doing something else, let us know. We're interested. But with that, we will see you next week. Love ya. Bye.

SPEAKER_01 19:33

That's a wrap on another episode of the Finance Girlies podcast. Nothing in this episode is meant to be taken as financial advice.

SPEAKER_00 19:41

Please do your own research and talk to a professional if you need advice. As always, if you enjoyed this episode, don't forget to subscribe, rate, and review. Love ya, bye.