Spring is in the air! The weather is warming, the birds are chirping, the flowers are budding—and the IRS is probably sending you some refund money. Quite a bit of money, if the average refund for the 2024 season remains at the current level of $3,213.
Financial experts may scold taxpayers for receiving a large tax refund, but there are definitely some major financial benefits to receiving a visit from the refund fairy—especially if you spend the money in a way that keeps it working for you.
If you’re expecting any size refund from Uncle Sam this year, consider these options for using the money.
Ease Your Future Stress
Your refund gives you the opportunity to make your life easier for your future self if you spend it wisely now.
Fill Your Emergency Fund
While unexpected expenses are, by definition, unpredictable, you can always count on them to arrive (and usually at the worst possible time). This is why setting aside some portion of your tax refund in an emergency fund can give you some future peace of mind.
Financial planner Walter Russell, president of Russell and Associates, recommends “aiming for at least three to six months’ worth of living expenses” in your emergency fund. If that dollar amount seems out of reach, start with an emergency fund of $1,000 from your tax refund. You’ll be glad to have it when the next surprise expense strikes.
Get Ahead
If you’re accustomed to living paycheck-to-paycheck, financial planner Nadia Vanderhall recommends using your refund to set yourself up for financial success.
“One of my favorite things is for folks to ‘pay up’ some expenses that they aren’t behind on like rent or utilities,” she says. If you’ve struggled to set up and maintain an emergency fund, getting ahead on regular bills or expenses can offer you an important cushion for when a financial emergency strikes.
Similarly, if you have any trouble building credit, Vanderhall suggests opening a secured credit card with a portion of your tax refund. “Put money on a secured credit card and use it for emergencies or for a specific bill that’s low each month, such as your Netflix account. This allows you to build credit while not breaking your budget.”
Now is also a great time to stock up on grocery and warehouse-club gift cards. “This time of year, you could find memberships to Sam’s, Costco, and BJ’s on sale,” Vanderhall says. “Grab a membership for the sale price and then use your gift cards now and throughout the year.” This will give you the gift of an easier cash flow during lean months.
Reduce Your Future Costs
There are several ways you can spend refund money now to save you even more money in the long run.
Pay Off Debt
Using your refund to pay down or pay off high-interest debt is probably one of the most common recommendations you’ll hear from financial experts during tax season. This advice may feel old and tired, but this is one of the most impactful ways you can use your money—especially considering the current average credit card interest rate is 24.61%, and the average balance is $6,864, according to Lending Tree.
Logan Allec, a CPA and founder of tax relief company Choice Tax Relief, suggests making a plan for paying off high-interest debt on the same day you file your tax return. “After you file, look through all your credit card statements to find the one that’s charging you at the highest interest rate. As soon as you get your tax refund, make a payment on this card.”
Upgrade, Upgrade, Upgrade
Walter Russell suggests using your refund to improve the things that you use regularly. For example, “you could use your refund to invest in maintenance and repairs for your current vehicle,” he says. This kind of preventative maintenance and proactive repair will keep your car running for longer.
Similarly, Russell recommends upgrading any technology you may rely on daily, such as your laptop or phone. “Now’s a good time to invest in new technology or equipment that can improve your productivity or help you advance in your career.”
But that’s not the only kind of upgrade you may need. You may also want to use your refund for “preventive healthcare expenses, gym memberships, or wellness retreats to prioritize your well-being,” Russell says, “or to purchase or increase insurance coverage, such as life insurance, disability insurance, or long-term care insurance.”
Thinking of your refund as a means of upgrading the things you rely on most can help prevent future financial emergencies.
Invest
There are a number of ways that taxpayers can invest their refund money to help it grow.
Fund Your Nest Egg
Putting some or all of your refund into your retirement investment account is an excellent way to ensure the money is working for you. And if you have not at least received the employer-matching contribution to your workplace retirement account, then it’s probably wise to put your refund into your 401(k).
Increase Value
Retirement accounts aren’t the only option for investing your money. For instance, Russell suggests investing in your home with your refund check. “Use your refund to make necessary home repairs or renovations, which can increase the value of your property,” he says.
Similarly, Russell recommends investing in your career through courses, workshops, or certifications that can make you more valuable in the job market; or investing in rental properties, dividend-paying stocks, or peer-to-peer lending as a way of helping create some passive income streams for yourself.
Make Your Refund Work For You
There’s nothing wrong with using your refund money for something fun—but you can make sure the benefits of your refund are long-lasting by using it to ease your future stress, reduce your future costs, or by investing. Your future self will thank you for it.
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