5 Constructive Ways to Use Your Tax Refund

5 Constructive Ways to Use Your Tax Refund - picture of roll of banknotes on April calendar with April 15 circled

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A few weeks ago, I admitted that I overpaid my taxes for 2013 and would be getting almost $6,500 back.  Ugh. Well, it landed in my bank account a few weeks ago and we did some really boring things with it.  Brace yourselves.  This is what we did:

  • We invested $3,000 in index funds.
  • The rest is still sitting there.

Obviously, we need to do something with the rest of our refund.  However, we often fail to be proactive with any extra money we come across.  In fact, we’ve been known to let our emergency fund balloon to ridiculous levels, mainly due to laziness on our part.  But this year will be different.  We promised not to let our emergency fund get higher than $15,000 for more than a few months at a time, and we’re sticking to that promise.  But enough about me…..

5 Constructive Ways to Use Your Tax Refund

If you’re getting a tax refund, you’re probably trying to figure out the best ways to put it to use.  It is your own money, after all.  You should enjoy it or at least benefit from it in some way, right?  Also, if  you haven’t filed your taxes yet, please know that time is running out.  At least take some time to e-file for an extension so that you don’t get stuck paying unnecessary fines.

Once your tax refund lands safely in your bank account, you need to put it to use.  Here are five constructive ways to use your tax refund:

Pay Down Debt

Paying off any debt you may have is by far the best way to spend your tax return.  So pay off your car, your credit card, or your furniture.  Hell, pay off your student loans for all I care.  Your future self will thank you.

Add to Your Emergency Fund

If you don’t have an emergency fund, or if you only have a small one, your tax refund is the perfect place to start.  Just plop that baby in the bank and forget it’s there.  Please.

Start a Targeted Savings Account

If you’re out of debt and have a substantial emergency fund already, you could always start a targeted savings account for anything you want.  You can choose to save for whatever your heart desires, whether it’s a long vacation, a new or used car, or your kid’s college.  The choice is yours to make.

Take Care of Business

Being an adult often means paying for things that are incredibly boring, like home maintenance, car parts, or medical bills.  Like it or not, your tax return might be the key to taking care of some of the big expenses you’ve been putting off.  I personally need new tires on my minivan, and my tax refund might foot the bill.  Yawn.

Save for Retirement

The fact that you overpaid on your taxes means that you get some of your own money back, but what should you do with it?  If you can’t come up with a better idea, you might as well save it for your own retirement, right?  So, add it to one of your taxable investment accounts or use it to top off your ROTH IRA.  No matter what you decide, saving for the future is always a good idea.

If you haven’t filed your taxes, please know that you only have four days left unless you act quickly.  At this point, I would suggest filing for an extension online instead of snail mail!

Have you filed your taxes yet?  Did you get money back this year?  What do you plan to do with it?

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  1. Putting an emergency fund would be my first choice, since my emergency fund is not stable yet. And I put up a small business an online shop or franchising a business. Nice one Holly, these are all great tips!

  2. Even though those may be ‘boring’ ways to pay for retirement, they are definitely smart financial decisions. I know you aren’t happy about overpaying that much, but at least you didn’t UNDERPAY close to six grand. Not that I know anyone who did that….

    1. You’re so right. We owed once and I absolutely hated it!

    2. Underpaying is the smart thing to do – Uncle Sam is giving you an interest free loan. Getting a large refund check is the stupidest thing you can do – you are giving Uncle Sam an interest free loan.

  3. We haven’t filed yet. My wife always gets an extension because she is too busy doing other people’s taxes at work. I know…I could do them but when you have a CPA in the house… We will be putting some of our refund towards our family vacation.

  4. I’ll file my taxes on Saturday. My sister’s CPA was really lazy and I didn’t get a 1099 from her until last week and that was the one piece holding me up (I had loaned my sister’s business $40K so she is paying me back). I have everything ready to go, so this should take maybe 3 minutes.

    We are getting money back this year and wel will be boring and take most of it and dump it into my son’s 529 plan and take the rest and put it into the old Vanguard account. Next year might be a different story since I have a pretty large capital gain I am going to have to deal with since I sold a large position in a certain local pharma company that I am waaaay overexposed to.

  5. Yeah we never do anything real exciting with our returns. Mostly, retirement contributions. I guess that’s not so bad though 🙂

  6. We paid down debt and saved the rest. Sounds boring, but felt pretty great!

  7. We netted out owing about $250 to the feds. 🙁 But, since I was convinced we were going to get hit big time I’ll take owing $250. That said, if we did get anything back we’d likely be investing it.

    1. $250 isn’t bad at all. That’s about as close as you can get to zero without owing!

  8. We didn’t get a refund but it wasn’t as bad as I thought. We ended up doing a Roth for Jim with money we were holding for the tax bill, so that was a winner in not having to give that to Uncle Sam.

  9. I am getting a larger than desired refund this year. I will invest it. I am adjusting my withholding to lower next year’s refund though.

    1. I am paying in less each quarter this year so I don’t get such a big refund.

  10. I would go with pay down debt and save. Those are great options. If you really want to do something for yourself, then take just a little bit and buy yourself something nice!

    1. I bought myself some potting soil and flowers for my yard!

  11. We didn’t have a huge refund this year and I try to keep it that way. I think we had in total about $500 refunded. It will go straight to the student loans. Can’t get rid of those damn loans fast enough!

  12. We will be putting our tax refund to our Roth IRAs this year. It may be boring, but we’re feeling pretty good about it!

  13. I think you left out “blow $1,000 at a Vegas casino” in there somewhere….

    I owe about $400 this year. Very proud of myself for that 🙂

  14. The first year we were married, we got $4,200 back. We bought a (cheap) car with the money. I would probably pay down debt if I got that much back this year.

  15. I used my return to pay down my student loans. These are all great options, though. If I didn’t have debt, it would probably get invested.

  16. MomofTwoPreciousGirls says:

    We just got back from our first ever family vacation. We ended up doing Universal for pretty cheap (using some of your tips, like driving instead of flying, finding a place with a kitchen to save on meals etc). It was wonderful and best of all, we saved up and paid for the whole thing in cash! We even had a big chunk left over that added to our refund gave us about $5500! Feels awesome! We did some pretty boring stuff with ours too! First paid off one of my student loans, then put some in our emergency fund, bought a desperately needed lawnmower (hubby said either we buy a new one or we will pay someone to do the lawn!). We also set some aside for celebrating our 10 year wedding anniversary in September. Lastly we will be investing on some better quality pillows. Our sleeping situation has been awful for quite some time…basically all feathers are gone from my pillows and my neck gets all twisted from the big sag in them! It feels good to be in a position to actual have some CHOICES about what we do with our money!

  17. I wrote a post a few weeks back about what we were going to do. Most of it was for targeted savings, either for expenses in the upcoming year or larger long-term expenses. We did set some aside as ‘fun’ money which I think is important, though it was less than 5% of the total refund.

  18. We broke even between state and federal and after the tax pain we had last year, I consider that I huge success! And I love that you invested half of your refund! Good for you!

  19. These are great tips. Seems like so many people see their refund as free fun money and just spend it right away. Last year I owed, but this year we got a nice little refund, woohoo!

  20. Its good to have money on hand and $4500 is enough for me i guess. Good thing you invested some of your money to index fund rather than have it sit and do nothing. You worked hard for that money and money should work hard for you as well. How much money are you going to save for your retirement option?

  21. We owed huge this year. Really really huge, due to some property sales. But the government didn’t have it the whole year. We always try to break even but it’s pretty hard when the government keeps changing tax laws and rates.

  22. I think these are good ways to spend tax refund. Anything that makes the money for good use is better than just have it lay around somewhere!

  23. Between Fed and State income taxes, we ended up owing roughly $1,500. We had the money saved, so paying it was no big deal. While we were saving for the tax payment, we also ended up with an additional $4k saved just ’cause that’s what we do. We save. So, looking at this $4k like a tax refund, what did we do with it? We just invested it. It’s what we always do with extra money.

  24. We’re getting a small refund which we will be using for home stuff instead of debt but it’s money well spent!

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