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What To Do With Your Tax Refund: 10 Money Moves

Whether you’re getting a big or small tax refund, being smart with that money can put you ahead financially. Learn how to put your tax refund to good use with 10 money moves you can make once you get your check.

Erica Gellerman • March 17, 2022

Getting a tax refund is always exciting but sometimes figuring out what to do with it can be stressful. Your first thought might be to use it for a well-needed vacation or a new gadget, but it’s actually the perfect opportunity to improve your finances. 

The Internal Revenue Service (IRS) issued more than  $736 billion in tax refunds while the average tax refund was more than $2,800. That’s a big chunk of change that can be used to boost your savings or set other money goals.

Using your tax return to support different  financial goals is the perfect way to make the most of your refund. If you find yourself with a  windfall this tax season, check out 10 of the best things you can do with your tax return: 

1. Create or build an emergency fund

An emergency fund is a lump of savings that you can turn to when something unfortunate happens, like if your car breaks down or you need to make home repairs.These funds can be a nice cushion to fall back on during unexpected life events such as a major illness or a job loss. 

With an emergency fund, you’re less likely to reach for a credit card or take out a loan when you’re short on cash. Getting started with an emergency fund — or saving enough cash — can be a challenge. So, if you get a tax refund, why not use it to boost your emergency fund and save more money?

Pro Tip: Put your emergency fund in a high-yield savings account  to grow those dollars when you aren’t using them. Start by aiming to set aside  between 1 and 6 months  of expenses.

2. Pay off your debts

Debt can weigh down your financial future. Especially if the  interest rates on your debts are high. With the average interest rate on credit cards over 16%, those interest payments add up. Using your tax refund to pay down some bigger debts will save you money in the long run.

Your tax refund is a perfect opportunity to even make a larger than usual payment on your debt. If you want a less aggressive start, get rid of your smaller debts first by trying the debt snowball method. If you use this method, you strive to pay off your smallest debts first by paying more toward the principal balance. When you eliminate your smallest debt, start paying extra money to your next smallest debt.

Consider using your tax refund to pay down your debt, on credit cards, student loans, or  personal loans. Not only will you stop paying interest every month, but you may even  boost your credit score.

Pro Tip: If you’re planning to use a big part of your refund to pay off a credit card, try calling the company beforehand and attempt to negotiate a lower interest rate since you’re making a big payment toward the debt. 

3. Further your education

Are you looking to switch jobs or do you need some additional education to advance in your career? You might consider using this tax refund to invest in you

Maybe you want to make the jump to a technical career and attend a programming bootcamp. Or, perhaps you just need a few more solid skills to help you nab that next promotion. You could also use it to earn a professional certificate or add a special skill to your resume. Over time, a salary increase  will be worth much more than the value of your current refund.

Pro Tip: If you put that money into continuing your education, you may also qualify for the  Lifetime Learning Tax Credit  on next year’s return. 

4. Contribute to your retirement account

You should contribute to retirement accounts as soon as possible to reap the benefits of compound interest. Whether you have an  employer-sponsored 401(k)  or an  individual retirement account (IRA)  contributing your tax return to a retirement fund can help boost your overall savings.

Using your tax refund to open or contribute to an existing IRA will bring in the big bucks over a long period of time. To put it into perspective, let’s say you take your $2,800 tax refund and put it into a retirement account every year for the next 30 years. If you earn an average interest rate of 6%, that money  will be worth over $200,000  when you reach retirement

Keeping a close eye on your retirement accounts and adding extra cash using your tax refund can help support your long-term financial goals and help you reach them faster than ever. 

Not a bad nest egg!

Pro Tip: Always check if a new employer offers a 401(k) match, which could potentially double the dollars you put in each month.

5. Invest in life insurance 

Purchasing life insurance is frequently overlooked, especially for young people whose last worry is the unknown. Although it’s not something you need to stress over, investing in a life insurance policy will provide security for you and your family in case there is an unexpected event. A life insurance policy can provide protection for loved ones at a relatively low cost. 

For a few hundred dollars, your tax refund can allow your family to maintain their standard of living if the unthinkable were to happen. If you’re unsure about how much coverage to buy, first start with developing a basic understanding of the different types of life insurance policies available. Then you can run your own numbers online or consult with a specific company or insurer before purchasing. 

Pro Tip: Purchasing life insurance at a young age locks in a better rate, as the amount you pay stays the same for the duration of the policy, unless you opt to change your coverage.  

6. Start or grow your business

If you’ve wanted to start a business, but you’ve just needed a little extra cash to help with the initial cost, think of your tax refund as the seed money to help you get started. Use it to buy materials for your Etsy store or set up a website and open the doors to your new business venture. 

Even if you already have a side hustle and are looking to grow it, the extra cash from a tax refund can help give your endeavors a boost and help you make more money in the long term, making it a sound investment

Pro Tip: Some people are able to grow their side hustle into a full-time career. Investing part of your tax return into your business can help make your business a full-time gig.  

7. Save for short-term goals

Maybe you’ve been meaning to start saving for a new car or some home improvements. Take this tax refund as an opportunity to  jumpstart that savings and work toward a few short-term goals. Achieving these smaller goals will make you feel accomplished and want to work on your next set of ambitions.

If you don’t have a specific goal in mind, earmark your refund to your savings account anyway. You’ll think of the goal soon and you’ll be glad that you didn’t let that money slip away with regrettable impulse buys. 

Pro Tip: You can use your tax refund to establish a  sinking fund, which will be a specific pot of money for one of your short-term goals like buying a new computer or saving for your wedding. 

8. Secure new investments

More long-term  investments are a great way to grow your money and even build some passive income streams, making you money while you sleep. Learning more about the stock market, real estate, mutual funds, or savings bonds will allow you to build your income overtime, setting your future up for success. You may even want to work with a financial advisor and ask them where you should invest your money once you have your refund. 

Creating an investment portfolio for yourself will give you assets to count on later in life, in addition to your retirement accounts. Although some investments are riskier than others, making an informed decision to put a little bit of your tax refund toward an asset will bring more value to your finances over time. 

If you want to help your child pay for college, you can look into stashing your refund money away in a 529 plan (if available in your state). That money will be set aside for their education and you may even get a state tax deduction for next year, making it a win-win. And nothing says “investment” like preparing for your children’s future.

Pro Tip: If you’re just getting started with investing and want to secure some small assets on your own, mobile applications like Robinhood  and Acorns  allow you to invest your dollars right from your phone.

9. Donate to a favorite charity

If you receive a small financial windfall from a tax return, you can consider donating to an accredited charity. In addition to supporting a cause that’s important to you, your donation may be tax deductible. If you itemize your deductions on your next return, your donation might qualify as a deduction. 

Pro Tip: If you’re counting on the tax break given when making a charitable donation, make sure the charity you are giving to is a  registered 501(c)3 since these types of nonprofits allow their donors to write off donations where a 501(c) organization doesn’t.

10. Treat yourself 

Now, without getting too wild, take a little bit of your tax refund to do something fun. It’s perfectly fine to spend some of that money on yourself, so you don’t end up overspending. Whether you’ve been eyeing some new clothing pieces or want to take a day trip to a new city, you can put that money toward something that will bring you joy without feeling guilty about it.

It’s all about balance and setting aside a small portion of your tax return for yourself. This will prevent you from overspending or splurging too much, and wasting the entire refund on one thing. As long as you’re focusing on more long-term goals and using a big chunk of your refund wisely, you’ll be able to move forward financially and grow your money.

Pro Tip: To get more bang for your buck, use  shopping apps that can save you money when treating yourself to something nice.


When will I receive my tax refund?

You’ll typically receive your tax refund within a couple of months after it’s sent in, depending on how you filed. If you filed a paper tax return, the turnaround time is 6 to 8 weeks. If you filed electronically, you’ll wait around 3 weeks. E-filing and signing up for direct deposit will allow you to receive your refund the fastest.

What should I avoid using my tax refund for?

There are no hard and fast rules on how you have to spend your tax refund. A lot of people like to spend that money on themselves, while others prioritize saving and paying down debts. It all depends on your financial circumstances and what’s important to you. However, keep in mind that using your refund for financial goals, rather than material items, will help you in the long run.

What should I prioritize first with my tax refund?

This is dependent on your personal financial goals and what you value when it comes to money. Building your emergency fund or paying down debts could be a good place to start. These actions can better your financial situation sooner rather than later. If you’re completely unsure of where to start, consult with a financial expert or advisor who can help you make a plan for your tax refund. 

Final thoughts

If you use your tax refund sensibly, you can put it to work and reach some financial goals along the way. Don’t view your refund as just extra money. It’s income that you earned throughout the tax year, that is now rightfully yours!

Since you worked hard for your refund, make sure once it’s in your hands, you let that money now work for you. Be sure to consult with an experienced tax professional when filing to maximize your refund. And remember this: If you get a refund, spend it wisely. 

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