5 Wise Things To Do With Your Tax Refund

Many of you have either already received your tax refund, or are anticipating one in the next few days. It can be very easy to simply waste the money on something that will not provide a large benefit to you. Here are more productive ways to spend your refund.

5 Things To Do With Your Tax Refund

Build Up An Emergency Fund

If you do not already have an emergency fund in place, and you are getting a tax refund this year, here is your chance! The point of an emergency fund is so you can have money stashed away when something unexpected comes up. If you are not financially prepared for emergencies, then you may be forced to rely on high-interest credit cards, or tap into your retirement savings in order to get by.

Even if you are in debt, you really can’t afford not to have a “decent amount” of savings! It may be tempting to apply the full amount of your refund to debt repayment, or even blow spend it on a new toy; however, if you are not prepared for an emergency, you run the risk of falling into financial ruin.

If you are in debt, try to put aside enough out of your tax refund to cover 1 month of living expenses, then move on to the next suggestion…

Pay Off High-Interest Debt

To be honest, I wanted to make the suggestion that you pay off any debt that you may have, but I didn’t want to shift the focus of this article to become a mortgage debate.

If you have any debt for which you are charged a high-interest rate, then you need to use your tax refund to eliminate it! Sometimes it can be easy to lose motivation when attempting to pay off debt by small increments each month.

Using your refund is a great way to give your debt repayment plan a huge shot in the arm!

Setting up an emergency fund and getting out of debt should be at the top of most of our lists. This will allow us to have the financial stability to handle shocks and the freedom to choose an unconventional path!

Give It

I run into people all the time who are have a heart to give, but lack the resources. There are many things in life that can make it difficult to give to those in need. I have also noticed that many times when we think of what to do with a lump sum (such as a bonus or a tax refund), we automatically try to find something that will provide a major benefit to us. However, we should also consider this as an opportunity to fulfill our desire to give.

There are a number of causes and organizations to which we can give. If you are a member of a church, the first place to which you should consider giving is your local church. Then think of other ministries that support causes that align with your heart. Of course, you do not have to be a Christian to give – there are so many great organizations (of various affiliations) that are looking to make a difference! If you know of family members or friends that could use a helping hand, that may be another option for your tax refund.

So, before you think about all of the great things that you can buy with your refund, consider those less fortunate than you, and use this as an opportunity to help out.

Save For Retirement

This is an area in which most Americans need some serious help! Many people are desperately behind when it comes to retirement planning. One of the easiest ways to give your retirement savings a kick-start is to use your tax refund to set up an Individual Retirement Arrangement (IRA)! Take a look at the current IRA contribution limits and get started today!

You may even want to increase the amount that you are contributing to an employer-sponsored retirement account, such as a 401k. This makes sense especially if you have reached your limit on the IRA. What you can do is leave your refund in your savings account, and then increase your annual contribution (be sure not to exceed the 401k contribution limits) by the amount of your refund.

Invest In Yourself

Have you ever wanted to learn a new skill or trade? Do you feel as though your career could use a boost from more training? If so, take your tax refund and invest in your own professional development!

Many universities and community colleges offer continuing education and/or professional development courses during the evenings and on Saturdays. You can take courses to improve your computer skills, or even get started on a professional certification or degree.

Final Thoughts

This list is by no means exhaustive, but simply can serve as a starting point when considering what to do with your tax refund. Also, don’t think that planning a vacation or buying furniture with your refund is wrong! Just make sure that you are being responsible in your decision.

If you will gain more satisfaction out of seeing your debt disappear or building up an emergency fund, then skip the vacation for another time.

photo by Salvatore Vuono

Reader Questions

  1. Did you receive a tax refund this year? If so, how did you spend it?
  2. Do you follow the same logic when it comes to other lump sum payments?
  3. Are you one of the millions of people who have not yet file a return? If so, feel free to contact us for tax preparation.


  1. Jacqueline says

    We paid my hubby’s car off with our income taxes! Very relieved it felt very good! The smell of financial freedom is wonderful! Beautiful music to my ears! :)

  2. Marie@familymoneyvalues says

    Great thoughts on ways to use tax refunds!

    For those with the strength and diligence, however, there may be an even better route.

    For years, we let Uncle Sam have our tax money early, using high deduction rates so we wouldn’t have to pay more taxes in April.

    It finally dawned on us, that we should be keeping as much of that tax money for as long as we could and trying to use it to earn interest. When we woke up to that realization, we started paying as little as we could on taxes each payday (to avoid penalties you have to pay in a certain amount along the way). We banked the rest so that it could work for us during the quarter instead of going into Uncle Sam’s slush pot.

    This does require a bit of extra calculating throughout the year, so that you know how much of an estimated tax payment to make each quarter, but the reward is that YOU earn the money on YOUR tax money until you have to give the tax to the government.

  3. Robin says

    We fell behind on our mortgage payments last year…so now we are negotiating with our tax refund to try and catch up! Whatever you do, keep yourselves from losing your home! Having a place to call home is a wonderful piece of security in this uncertain economy.

  4. Spice Woman says

    We used our tax refund to catch up on bills that we were behind on. We have been paying a fortune in late fees and overdraft charges, so this was more important than an emergency fund. We usually use it to catch up after falling behind – but this year, for the first time I actually have a budget and a plan to stay on top of things, so next year we will be able to put our refund toward Emergency Fund/Debt Reduction.

  5. Ricky says

    Great post, I completely agree with the ‘Invest in Yourself’ idea. If anything does go wrong in your career you want to be safe in the knowledge that you acquired enough skills and experience that you could cope if you were out of work. Investing in yourself can be one of the most rewarding things you do as well, it often leads to good things!

  6. Justin @ MoneyIsTheRoot says

    I definitely think that high interest debt like credit cards should be paid off first and foremost. After that, you could look into an IRA contribution, or perhaps dividend yielding stocks.

  7. Nora says

    Great tips here. I recommend taking some of your tax return and paying off a cell phone contract in order to keep yourself saving throughout the year. Consider that a paid off cell phone contract will probably run about $175 or so, but the savings with a more economical prepaid option every month can be about $40 and that’s exactly what I did last tax season with an easy switch to Net10. ust went to Target and got everything together and it took literally an hour to get it all done.

  8. Tracy says

    This year we used our tax refund to pay down credit card debt since we already have a small emergency fund. It gave us a boost in our enthusiasm and energy to finish this debt off since it was a much higher payment than we can usually make! Six more months and we should be done with it.

    Next step, fully fund our emergency fund and then max out our IRA contributions!

  9. Khaleef Crumbley says

    @ Jacqueline, I bet making that final payment to the bank was a wonderful feeling!

    @ Marie, so you pay an extremely low amount through your payroll deductions, and then make additional estimated payments each quarter? That definitely takes a lot of discipline and calculating to ensure that you do not pay too little and incur penalties.

    @ Robin, I am glad that you are able to apply your tax refund to help you catch up with your mortgage payments. Honestly, I don’t think that a home should be treated much differently than anything else that you could possess. If it makes financial sense to keep it, then try your best; but if it doesn’t make financial sense…then get rid of it.

    @ Krantcents, I like small refunds as well – that means that I avoid giving an interest free loan to the government during the year!

    @ Jasmine, I really like your idea about buying and stashing a grocery gift card. This is great especially if you are struggling to make ends meet, or if you have a desire to help other families when these needs arise!

    @ Spice Woman, I am glad that you were able to stabilize your finances this year. If you usually repeat this cycle of falling behind during the year and then catching up using your refund, then I would advise you to revisit your withholding (you can use the IRS withholding calculator at http://www.irs.gov).

    If you are receiving refunds, that means that you are consistently having too much taxes withheld from each paycheck. Since you are not bringing home enough to make the minimum payments on your debt, you need every [legal] dime that you can get during each month!

    If you would like someone to review your plan, feel free to contact me – http://knsfinancial.com/contact-us/

  10. Khaleef Crumbley says

    @ Ricky, I think this is a category that we often over look. We don’t think about training or developing ourselves so we can be more prepared when negative things happen or opportunities arise.

    @ Justin, I love the idea of using a tax refund to invest. Especially for someone who has yet to get started. A bonus or tax refund is a great place to start!

    @ Nora, are you suggesting buying out your contract (by paying the cancellation fee) and then immediately switching to a prepaid option? My only hesitation with that would be that you may have to wait a long time in order to earn that money back (in savings). It may be better to just adjust your current plan and wait out your contract. In either case, it’s good to conduct an analysis and see what would be best.

    @ Tracy, I can’t wait to get to the point where I can see the finish line! Be sure to come back often and keep us updated on your progress!

  11. Lee-Anne says

    I think cancelling your cell phone contract is a great idea and paying the $180 cancellation fee with your tax refund money. I cancelled my contract some time ago because I was very unhappy with the customer service (long story) and changed to using Straight Talk’s prepaid plans. I was paying about $100/month for unlimited on contract and now I’m using Straight Talks unlimited costing $45/month. I now have no hidden fee’s, no ball and chain and I’m saving $55/month. So within 4 months I saved enough money to make up for the cancellation fee and then kept on putting all my savings into paying off my debt. This scenario really works and I’d recommend it to anyone who is battling to make ends meet.

  12. says

    Great article and ideas about this year’s tax rebates. Another idea…buy renters insurance! For one, it’s cheap and a policy will provide protection for less than $20/month while offering liability coverage as well.

  13. Khaleef Crumbley says

    @ Robert, it’s always good to get that out of the way early.

    @ Lee-Anne, I think for people that are in over their heads with their cell phone plan, this is a great option. You were able to make up the fee in 4 months, so I think you made a great choice.

  14. jackson rodgers says

    Most people don’t have enough in their emergency fund so I like that suggestion.

    I split any tax return I get and put in the following places: emergency fund, 401k fund, and my kids 529 College Savings fund. I try to keep a little bit and use it to have a nice meal out as a treat.