5 Smart Ways to Spend Your Tax Refund

Smart Ways to Spend Your Tax Refund | Budgeting 101 | Home 101 | Money Saving Tips | Saving & Investing

This is a guest post from Kalyn Brooke of

Every year around tax time, I anxiously wait for a call from our CPA letting us know whether we owe or get a refund this year. It’s anxiety-inducing to say the least, but for the most part, we’ve been lucky enough to get a nice chunk of change deposited into our account — usually right before we have a major car repair — go figure!

As we’re paying for those perfectly timed {and usually unplanned} expenses, I have to admit I’m a little jealous of those who are able to spend their refund in a more exciting way. But while it might be more exciting at first glance, I know that it’s not always smart, especially if we have to make hard financial sacrifices in order to “keep up appearances”.

It’s frustrating to be responsible, yes? But I’m pretty sure you’ll find it’s more than worth it.

Here are the steps you need to tackle first, before using your tax refund toward a dream cruise, fancy car, or kitchen remodel. In fact, if you continue to use your resources wisely, you’ll be able to afford those fun things many times over — promise!

 Smart Ways to Spend Your Tax Refund | Budgeting 101 | Home 101 | Money Saving Tips | Saving & Investing

Start or Increase Your Emergency Fund

Emergency funds are essential to maintaining healthy finances — they help you prepare for the unexpected, and reduce the impact of a higher than normal bill. Without an emergency fund, both my husband and I would be in hot water, for sure!

If you don’t have an emergency fund set up yet,  tax time is the perfect opportunity to start. A general rule of thumb is to set a goal of $1,000, which might seem like a lot, especially if you’re struggling just to meet the day-to-day expenses. But if you can just put a few hundred dollars from your return toward establishing one, you’ll be better off than most.

After you’ve made it to the $1,000 mark, you can work on increasing your fund to be approximately three months worth of expenses {an extra safe zone}, or move on to Step 2. You also might want to reference 10 Smart Ways to Build an Emergency Fund for even more ideas on how to save.

Pay Down High Interest Debt

The next step is to work on paying off, or at least putting a good portion towards, high interest debt. These are things like credit cards, school loans, or any other outstanding debt you might have with a super high interest rate. The sooner you can get rid of these payments, the more money you’ll have available for other, and more important things!

It seems everyone has a differing opinion on whether you should pay off debt first, or start an emergency fund. Supporters of the emergency fund claim that if something catastrophic happens, you won’t have any money to cover it. Supporters of paying off debt first, especially high interest ones, claim that you’ll save more money in the long run by doing it this way.


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No matter which way you choose, I honestly believe you won’t be doing it “wrong”. As long as you are steadily working toward a better financial future, you’ll be okay.

Smart Ways to Spend Your Tax Refund | Budgeting 101 | Home 101 | Money Saving Tips | Saving & Investing

Build Your Savings Account

Once you’ve paid down high interest debt AND have at least a $1,000 emergency fund, it’s time to start building your savings account. This is the fun part, because you can start dreaming about all the different things you want to eventually purchase!

Some people prefer to open a separate savings account specifically for each item they are saving for, or designate various columns in the same account to keep track. Do what works best and makes the most sense to you.

Here are some ideas of what you might start saving for:

  • A down payment for a home
  • Being able to pay for your next car in cash
  • A family vacation
  • A much-needed remodel or repair for your home
  • College tuition for your children

Your tax refund is an excellent resource to jumpstart any of the above goals, but if you want an even healthier savings, be sure to read 3 Surefire Ways to Increase Your Savings Account to reach those goals even faster.

Pay Down Longterm Debt

Interest rates for mortgages and car loans are generally lower than credit card rates, so the next step is to work on paying down those longer term debts that you’ve accumulated. It can seem really overwhelming to look at your mortgage and wonder how you’ll ever decrease it to a more manageable level, but even just one extra payment a year can have a big impact, and save a lot of interest! 

Something I find really helpful and motivating is to print out an amortization schedule in which I highlight the month any time a new payment is made. This shows me at a quick glance how many months I have left to pay, and encourages me to keep going until the loan is completely gone.

Smart Ways to Spend Your Tax Refund | Budgeting 101 | Home 101 | Money Saving Tips | Saving & Investing

Invest in the Future

When you have all the previous steps completed {or at least a good start!}, it’s time to use that tax refund towards investments. In all honesty, I’m not an expert in this area, but I do know that it’s important to stash away some money for retirement whenever you can.

If you have a 401K through your employer, seriously consider adding a little bit more toward it this year, and if you don’t yet have a Traditional or Roth IRA, now might be the perfect time to open one. {Here’s a better explanation of both IRA’s, and the difference between them.} Certificates of Deposit are less popular, but may be worth looking into if you don’t need to access your tax money right away, and are still deciding the best course of action.

Any amount you contribute towards retirement is deductible on next year’s taxes, so it’s has an even bigger and better benefit beyond helping you prepare for the future.

It’s not often that we have extra cash at our disposal, so it’s even more important that we spend our tax refund without regret. These steps will give your money the best chance of success, and start you on the path toward true financial independence!

Kalyn Brooke is a life management expert for busy women who crave a simpler and more organized life. Through her recognizable, down-to-earth approach, she provides a daily dose of inspiration and guidance, whether you’re looking for smart money tips, time saving routines, or anything in-between. When she’s not experimenting with ways to do even the most mundane tasks more efficiently, you can find her crafting detailed to-do lists in her bullet journal, or indulging in—yet another—personal development book. Meet Kalyn and learn how stay on top of it all at


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How are you spending your tax refund this year?Smart Ways to Spend Your Tax Refund | Budgeting 101 | Home 101 | Money Saving Tips | Saving & Investing


  1. Carrie B
    April 10 at 11:57AM

    We pretty much perfected the no-refund, no-owe strategy.
    Federal Refund: $476
    State Owing: $231
    Tax Prep Fees (also tax deductible!): $200
    NET: $45. We used it to get a babysitter for date night. 🙂

    On one hand I miss spending my tax refunds. On the other hand, I like keeping my money in my bank account during the year. 🙂

  2. Marcia Parmeley
    April 10 at 12:36PM

    Any amount you contribute towards retirement is deductible on next year’s taxes, so it’s has an even bigger and better benefit beyond helping you prepare for the future.

    This statement is inaccurate in that money contributed to a ROTH IRA is NOT deductible.

  3. We ended up with a BIG tax return this year. We’ve adjusted our withholding for 2015 to help prevent a large refund in the future. But our 2014 tax return… all $4000+ went to our mortgage! We are down to our last $39,000! Can’t wait for it to be gone! 🙂

    • Kalyn Brooke | Creative Savings
      April 10 at 05:19PM

      What an awesome feeling that will be when you make your last payment!

  4. I always treat my tax refund as a gift and use it towards investments or other payments. This year I invested some of it to my business and rest went to savings. It is always a great help 🙂

  5. james milner
    April 12 at 10:53PM

    wow this page is great!!! helped me out a lot!! check this video out too helps me out tons on how to save money!!!

  6. April 13 at 07:48AM

    Thanks for this! I like that you had a bullet on saving it to start or increase an emergency fund. I think that is great advice! People often think that refund is time to buy something the’ve been wanting but using it to get ahead is great! Thanks for the ideas!

  7. April 15 at 10:34PM

    This year, ours is going to a much needed remodel of the house. When we bought the house we only had our oldest and were still debating on having a second child (which just means my husband hadn’t agreed yet). Now we have the two girls and need a bigger bedroom so they can share. Our house came with one large open spaced room on the top floor which we have used as a living room/office/playroom area. This will now be converted into two bedrooms, one for us and one for the girls. Then, the big sis’s room will be the playroom and our bedroom will be the living room. Can’t wait until we get the contractor in to get things started. By that, I mean I can’t wait to not have the baby in my room. Love ya honey, but mommy needs just a little more space.

  8. July 14 at 07:31AM

    We used our tax return to help buy another rental property. Having rental properties has saved us a significant amount on our taxes. Love all your ideas for smart ways to spend your tax refund.

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