8 Things You Can Do With Your Tax Refund

by Khaleef Crumbley on March 20, 2012

in Personal Finance,Taxes

Tax Refund

Many people will be receiving (or have already received) a tax refund in the near future. Most people that I know plan to blow it on something that will not provide a benefit for their lives. Instead of wasting your refund and regretting your decision, try one of these 8 tips!

What To Do With Your Tax Refund

Start An Emergency Fund

Probably the most common characteristic of a financially stable household (besides the idea of living within their means) is an emergency fund. The point of this emergency fund so you can have money stashed away when something unexpected comes up.

If you are not financially prepared for emergencies, then you may be forced to rely on high-interest credit cards, or tap into your retirement savings in order to get by.

Pay Down Debt

Another great use of your tax refund is to pay off debt. This may seem like a boring option (especially when compared to how most people use their tax refund), but it will automatically earn a rate of return that is equal to the interest rate on your debt.

For instance, if you pay off a credit card that had an interest rate of 20%, then that is equivalent to earning 20% on an investment!

If you use it to pay off/down an installment loan (such as a mortgage or car loan), then you may have to specify that your extra payment should be applied to the principal.

Consider Paying Infrequent Expenses

Many times it can be difficult to remember those expenses which only come once or twice each year. Instead of being taken by surprise and sent scrambling for extra cash at the last minute, either pay or put aside money for these expenses using your tax refund.

Some of these can include your car insurance premium, a maintenance fee on a timeshare (don’t get me started on this one) or other property, roadside assistance fee, and any other types of subscriptions.

Save For Retirement

This is something that I recommend to many of my tax preparation clients. You can easily fund a retirement account, such as an IRA with your tax refund. If you have more than the current IRA contribution limits, then you can fully fund your account while taking advantage of one of these other options.

If for some reason you are not reaching the 401k contribution limits at work, you can use this extra money as a way to increase what you currently contribute. Of course, you can’t add outside money into a 401k; however, if you fall short of the contribution limit due to other expenses, you can use your tax refund to pay those other expenses and increase the amount that goes into your 401k!

Save For A Large Purchase

If you are looking to purchase a car (learn how to save money on car costs), new laptop, vacation, or any other large purchase, this may be your chance. Instead of going into debt to buy the item, you can use your tax refund.

Even if the amount of your refund isn’t enough for you to purchase the item outright, it can greatly reduce the time it will take to save up for it. You can also pad the account with bonuses, raises, and future tax refunds.


Giving is a very important part of any financial plan – especially for a Christian (we are commanded to give). I know many people who have a strong desire to give, but are not able because things are too tight for them financially.

If you are in a situation like this, a large tax refund can provide you with the perfect opportunity to give. There are plenty of organizations that are looking for donations in order to fulfill their mission such as, your local church, a missionary, food banks and homeless shelters, and any other charity that is fighting for a worthy (to you) cause, and has proven to be reliable!

If you are still looking for ideas, you can check out this orphanage in Haiti (I serve as the Treasurer)!

Start A “Blessing Fund”

One of the things that my wife and I want to do (once we are out of debt) is to establish a savings account that will only be for the purpose of providing financial blessings to others. By having a separate account for this, we never have to worry about depleting our emergency fund or any other “dedicated” savings when we come across someone in need.

If you have a desire to help people out at various times, but don’t always have the means when these times come up, use your tax refund to start a “blessing fund”.

Spend Your Tax Refund

I’ve talked before about celebrating small victories during your financial journey.  Use some or all of your tax refund and do something that you have wanted to do, but couldn’t. Maybe go out to a fancy restaurant, or buy a New iPad or some clothes!

No matter what you choose to buy, use all or a part of your tax refund to treat yourself. Then take the rest and put it toward your highest financial priority. This way, you can celebrate achieving a financial milestone, without diverting funds away from your current plan.

photo by cooldesign

Reader Questions

  1. Did you receive a tax refund this year? If so, how did you spend/save it?
  2. Do you purposely have excess taxes withheld during the year so you can have a large refund?
  3. Do you regret how you’ve spent a previous tax refund, bonus, or other “windfall”?

© 2012, Khaleef Crumbley. All rights reserved.

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{ 13 comments… read them below or add one }

1 ShortRoadTo

I know people who will take an extra $20 out of their paycheck and send it to the government simply to have a bigger refund the next year. They do it so they can splurge on themselves when they get their refund check.


2 Thomas - Ways to Invest Money

We have decided to use our tax refunds to fund trips for the year. Well not all of the taxes but a portion. Almost everything is taking care of such as 401k, savings, etc. So we found it better to put a cap on vacation spending and have it available at the beginning of the year.

Giving is another facet we used our taxes for.


3 Mark D. Cook

Well written article. Reinvesting your tax refund is another option to consider and what I personally intend on doing.


4 Robert @ The College Investor

Great tips. Since tax refund time and property tax time is about the same, we usually pay our property taxes with our refund.


5 Thad@generosity

This is a great list. Too many people just see it as a chance to spend the funds. Any of your ideas would be a great use of the extra funds.


6 JP@Novel Investor

The thought of spending part of the refund on yourself is like a nice little feel good moment. A lot of people view it as found money, even if it’s not. But I say go for it.


7 Young Professional Finances

I plan on using my tax refund to fully fund my emergency fund. I still haven’t gotten it yet and for some reason, their site is saying I won’t get it until the end of April!

I didn’t purposely withold a lot so I would get a huge refund but that ended up happening – and for the first time, I finally understand that. I changed my allowances for both federal and state a week ago.

I got 10K in a refund a couple years ago and ended up losing that as a deposit on a house I wasn’t able to buy. It was a sad day.


8 Kevin @ SpringCoin

+1 on the emergency savings fund! I always recommend starting atleast a $1k emergency savings fund before you pay down your debt. Even though you lose a little on interest, it will fight temptations for cash advances + payday loans….a dangerous trap! Great post Khaleef!


9 Anthony Thompson

Marvelous post! You’re right. A large number of people lose control when they get their tax refund checks. They simply blow it with large and unnecessary purchases. These are great ideas on how you can use your tax money to benefit you rather than simply throw it away on garbage.


10 Julie @ Freedom 48

If we got a tax refund. I’d definitely do a 50/50 split with saving and spending it. Unfortunately we always have to pay come tax time… which is no fun at all.


11 Jenna, Adaptu Community Manager

1. Not sure, I still need to file. (eek!)
2. I try too.
3. Nope, I got a brand new bed last year and love it.


12 Brent Pittman

Great ideas. We are getting an unexpected refund this year and will mostly Give, add to Emergency Fund, and save for future expenses. Perhaps spend a bit of mad money too.


13 Eric

I have only ever used my tax refunds for student loans or car loans. Now my only loan is my mortgage, so I am not sure if the money will go there or savings.

I agree that the worst thing to do is just spend it.


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