5 Wise Ways to Spend Your Tax Refund

It’s tax season once again…have you filed your return yet? If not, don’t panic. You have until April 18th this year, and if four days doesn’t give you adequate time to gather your documents, you can always file for an extension. (Pro tip: avoid the fees often associated with tax prep sites by heading on over to the IRS for some free online filing options.)

Last year the average tax refund was $3,252, but it’s likely that many refunds will be lower in 2023. Pandemic tax breaks (such as the recovery rebate credit and Advance Child Tax Credit) no longer apply.

With lower refunds, mindful money management is even more important this year. If you have received a refund and want to invest it wisely, here are a few suggestions.

While this may be a less exciting alternative to booking a weekend vacation or upgrading your wardrobe, paying down your credit card debt is a crucial step towards creating a healthy financial picture. Put your refund towards the credit card balance with the highest interest rate—this is the card costing you the most in the long run. The benefits of paying down debt are twofold: freeing up funds that would normally go towards high interest and giving your credit score a boost.

How prepared would you be in an emergency? If the mere thought is stress-inducing, you are not alone. According to a recent report, only 43% of adults would pay for an emergency expense from their savings account, and more than 1 in 3 Americans have more credit card debt than savings.

When creating an emergency fund (or even just saving money for a rainy day), you can deposit a percentage of your tax refund into a designated savings account and then set up automated weekly or monthly deposits. Even regular contributions between $10 and $20 add up over time, and when the unexpected happens, you will be less likely to rely on credit cards.

What are your long-term financial goals? Do you want to build your retirement fund or save up for your children’s future education? It is never too late to start saving, and your tax refund deposit can be a great building block to get your started or lump sum contribution if you have already laid the groundwork with an IRA or 529 plan.