The Smartest Way to Spend Your Tax Refund in 2018

By Chris Terschluse
February 17, 2018

Are you expecting a tax refund this year? There’s a pretty good chance your answer is yes.

In fact, the IRS issued 40 million tax refunds worth nearly $125 billion in 2015 and the average refund amount is $3,120 – a nice chunk of change. But, before you start daydreaming about all the ways you can spend that money, I encourage you to instead think about all the ways you can improve your finances.

Also, if you’re drowning in debt, have stacks of bills to pay or have big goals for your money, a lump sum refund can help you significantly. To learn more, take a look at some smart ways to spend your tax refund in 2018.

Pay Your Bills

I used to receive a tax refund back when I was in college. I was a single mom at the time and a refund was a great way to help me get ahead with my mounting bills. I usually put the money into a savings account or made extra payments on my rent for the year. This way, my budget wouldn’t be so tight each month.

It turns out that other moms take the same approach. Emma Johnson Reed, a stay at home mom from Ohio, says for the past few years she and her husband have used their tax refund to pay off medical bills and their credit card balances.

“Nothing makes life easier than feeling like you have “extra” money in the bank and all your bills paid for,” Emma sayes.

Pay Off Debt

If you have debt that you’re eager to get rid of, consider using your tax refund to make a dent in that amount or pay the entire account off.

In 2015, I owed $11,000 on my high-interest car loan and I wanted it gone ASAP. I received a $3,000 tax refund that year and put the entire amount toward my car loan. I ended up paying off the remaining balance on my loan that same year, saving myself thousands of dollars in interest.

Boost Your Savings

Sometimes, saving money for a goal can feel like a long-term plan. But, you can speed up the process with a tax refund.

A tax refund can also help you start automating your savings immediately. For example, you can deposit your refund into a new account with Chime Bank and then begin saving money automatically every time you use your debit card.

Chime also has an automatic savings account option where you set a rule to save money whenever you spend it or get paid. For example, you can automatically transfer a percentage of your paycheck to your savings account, or allow Chime to round up your transactions to the nearest dollar. Those roundups are deposited straight into your savings account, helping you reach your money goals faster.

Ashley McDonald, a registered nurse case manager from Michigan, uses her tax refund to replenish her savings account. She once even used the money to fund a down payment for a new car.

“I’ve been saving a portion of my refund money ever since college and it’s added up to $3,000 – $4,000 in just a few years,” says McDonald.

If your emergency savings account is fully funded, you can still save. This way you won’t have to worry about borrowing as much money in the future for everything from your child’s college expenses to buying a home.

Isaac Flex, a teacher from Florida, says he and his wife take a portion of their tax refund and set it aside in college funds for their two daughters.

“I know how expensive higher education can be and I want to help lighten my daughters’ financial burdens as much as possible,” Isaac says.

“Since we receive a child tax credit, which boosts our tax refund, it’s nice to give that money back to our daughters by beefing up their college savings.”


The sooner you start investing your money, they better off you’ll be down the line when it comes to building long-term wealth.

For example, consider investing your tax refund in your 401(k) or IRA. You can also start making monthly contributions to your individual retirement account and open a brokerage account.

Brandie Rogers, a graphic designer living in North Carolina, says she uses her tax refund to invest in the stock market.

“One of the best things I did with my last tax refund was use $1,000 to open up a brokerage account,” Brandie says. “It was nice to not have to worry about saving up the money to make the initial investment. For years, I kept telling myself I would invest but never did, so when my tax refund came around, I knew I didn’t have an excuse or anything holding me back.”

Aside from investing in the stock market, you can also use your tax refund to invest in yourself. For example, you could invest in your education by getting a new certification or learning an additional skill.

Another perk to investing in your skillset: you’ll be more marketable and able to earn more money throughout your career.

Where Do You Want to Be Next Year?

When you file your taxes and receive your tax refund, you’ll be tempted to spend mindlessly on splurges like a new phone, furniture, a beach vacation, and other non-necessities.

While there’s nothing wrong with doing nice things for yourself, you also should think about your future self and whether you’re on track to meet your goals. Remember: a tax refund can provide you with some relief and help you stay above water – financially speaking.

At the end of the day, how you spend your tax refund depends on your motivation and goals. In my case, I was ecstatic to pay off my high-interest car loan early in 2015 and I no longer have to worry about that debt.

What about you? Are you ready to use your tax refund to improve your financial state?

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