5 empowering ways to spend your tax refund


If you’re getting a tax refund this year, you can use it to boost your financial well-being and make progress toward your goals. 

For many of us, tax season comes with some cash from a refund. The average 2022 refund was $3,039Disclosure 1 —and a survey showed that most people planned to use their tax refund to pad their savings, pay household bills, or pay down debt.Disclosure 2  But what are some other ways you can use your tax refund to improve your financial well-being and get closer to your goals?

The highlights:

  • You can use your tax refund to support foundational money principles like building your savings or reducing debt.
  • Spending a portion of your refund on non-essentials that align with your values can be great for your well-being.
  • You can split your spending across multiple financial goals instead of choosing just one.

Brian Ford, head of financial wellness at Truist, says getting a windfall like a tax refund is an opportunity to make real strides toward your financial goals. The majority, he says, should go toward foundational money principles, like saving for emergencies or big essential expenses, reducing your debt load, or investing in a retirement or brokerage account.

But it’s also OK to take a portion of your tax refund—say 20% to 30%—to “spend according to your values,” Ford says. This could mean setting some of your tax refund aside for things like travel, tickets to a game or concert with a friend, or a down payment on a home for your family. Spending your tax refund in line with your values like this can have a positive impact on your confidence and overall satisfaction in life.

Here are ideas for five empowering ways you can spend it.

1. Build up your emergency savings.

According to a survey, more than half of Americans regularly save for emergencies—which can help you build financial confidence and resilience. But less than half of those surveyed said they’d be able to cover a $1,000 emergency expense without using a credit card or loan.Disclosure 3 If you have little or no emergency savings, start with a goal to save $1,000 in a separate account that you only touch for emergencies—that’s less than half the average refund from last year. Keep it in a high-interest savings account so it stays safe and can grow on its own over time.

Once you hit that $1,000 emergency savings goal, you can boost your sense of financial well-being further by steadily working to grow the fund to hold 3-6 months’ worth of living expenses. Ford calls this your “financial confidence account” because it helps you to be prepared for anything. But depending on your mindset and where you are with your other financial goals, you may want to use part of your tax refund for some of your other priorities, too.

It’s hard to put a price on peace of mind, but having a substantial emergency fund can do wonders for your mental well-being.

2. Reduce your debt—especially if it’s high-interest.

About 30% of Americans live a debt-free lifestyle.Disclosure 4 If that’s you, bravo! You can move on to the next idea. But if, like most Americans, you’re carrying some form of debt, your tax return could help make a dent in the balance. Reducing debt can boost financial confidence while also easing the emotional symptoms associated with being in debt.Disclosure 5

You should prioritize high-interest debt—like credit cards and other types of personal loans—before low-interest debt, Ford says. And while some forms of debt, like a reasonable mortgage, are considered “good,” your individual comfort level with carrying debt may be different from others’. So if paying off that “good” debt gives you even more peace of mind, then it’s not a bad idea to prioritize it. You’ll still save money in the long run by paying off any type of debt early.

Ford says this debt payoff strategy has helped many people he’s worked with: If you have debts under $1,000, using your return to pay one or more off could free up monthly cash flow and help you move on toward other goals. From there, list out your debts from the highest to the lowest interest rates—and focus on the highest one first.

3. Invest for the future.

Committing to a retirement savings and investment plan can help you feel confident about your ability to retire with your desired lifestyle—but the earlier you start, the better your chances. If you begin early, you have the benefit of time and compound interest to help you reach your goals. Whether it’s an employer-backed 401(k) or an IRA, putting a portion of your tax return toward your retirement goals is a smart money move.

Read more: 7 tips for hitting your retirement goals

If you’re already comfortable with your retirement savings progress, you could consider putting some of your tax refund in a brokerage account, which will allow you to invest the money in stocks, bonds, and mutual funds. It may not have all the tax benefits of a 401(k) or an IRA, but it’ll be easier to withdraw from should you want to use the money before retirement age. Investing outside of retirement accounts can be a great way to grow your net worth and save for long-term goals or future big-ticket expenses. And if you have kids, a 529 plan can also be a great way to invest to help cover your children’s future education expenses.

4. Save for a down payment on a home—or renovations.

Although the right time to buy a home depends on your unique situation, you can use your tax refund to help you be more prepared for that milestone. Investing in real estate is one of the common ways people build wealth over time. Plus, having a home to call your own can improve your sense of well-being.

If you’re already a homeowner, you could also consider using your tax refund to help pay for renovations—especially those that can provide a good return on investment, like a kitchen or primary bathroom remodel. Or, you may want to save some of your tax refund to go toward upcoming necessary repairs—like a new roof or HVAC system.

5. Spend the rest on what you value or need most.

Values-based budgeting is all about keeping your spending and saving in line with your goals and the things you feel are most important. For some, that may mean saving and investing more now so they can retire early. For others, it may mean spending a little more on experiences, like traveling. Or maybe what you really need now is a reliable car to get to work—in which case, using a portion of your tax refund toward a down payment may be what makes sense for you this year. When you spend, save, and budget based on your values, what you decide to do with your tax refund may look different compared to others.

At the end of the day, if there’s a non-essential expense that’s high on your values list, it’s OK to spend some of your tax return on it, guilt-free. Whatever you decide to do with your tax refund, use it in a way that empowers you.

Watch out for these common tax refund mistakes

As far as what not to do with your tax refund? “Where people usually go wrong,” says Ford, “is spending their refund before it arrives.” For example, they make a big purchase with a credit card or take a tax refund advance loan, which often comes with costly interest and penalties. But spending money you don’t have yet can lead to big regrets, especially if an unexpected expense arises.

Instead, Ford suggests not using any of your anticipated refund until you actually receive it. Then use the majority to do something beneficial for your well-being—like establishing an emergency fund, paying down debt, or investing for retirement.

Next step suggestions:

  • Start coming up with your own priority list for what to do with your tax refund by writing down your top financial goals, ranking them from top to bottom.
  • If you don’t already have a good place to save for emergencies or big expenses, consider opening a savings account so you have a safe place where your money can grow.
  • Consider using a small portion of your tax refund to treat yourself. Finding affordable ways to treat yourself can help you stay motivated while working toward your longer-term goals. 

This content does not constitute legal, tax, accounting, financial, investment, or mental health advice. You are encouraged to consult with competent legal, tax, accounting, financial, investment, or mental health professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.