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Smart Ways to Spend Your Tax Refund

Disclosure: This post may include affiliate links. As an affiliate, I earn from qualifying purchases.

This is a sponsored post written by me on behalf of Navy Federal Credit Union for IZEA. All opinions are 100% mine.

Don’t blow your refund check on insignificant items that won’t matter to you a few months from now. Consider these smart ways to spend your tax refund instead.

a couple of hundred dollar bills on top of a tax refund form with title text reading The Best Ways to Spend Your Tax Refund

Be Smart About Tax Scams

Before I get to the best ways to spend your refund, I’d like to highlight how rampant tax scams are now. Sadly, there are too many people willing to take advantage of the average person’s fear of the IRS and they use our fear against us.

Take a few minutes to take the MakingCents quiz on tax scams. It’s a brief quiz to see how susceptible you might be to falling prey to a tax scam.

Hopefully, it will open your eyes to the strategies criminals use to manipulate you into sharing information so you don’t become a victim.  

Smart Ways to Spend Your Tax Refund

The average individual received over $3000 in their 2017 tax refund. That’s almost equal to the average monthly take-home pay in the U.S. That’s not chump change!

As a result, your tax refund is a powerful financial tool. Follow these tips to make sure you get the biggest benefit from your refund.

These are smart ways to spend your tax refund so you can get the most mileage out of this financial windfall.

some hundred dollar bills on top of a 1040 tax refund form and some envelopes

Reduce Your Debt

If you are carrying debt, this should be the first place you allocate your tax refund. Borrowed money costs you more money over time since you are paying interest.

Your tax refund is a great way to make a big dent in your debt, potentially saving you hundreds of dollars over time. Ideally, you should pay off your highest interest debt first.

Though rates vary, in general, debts you carry will usually fall in the following order:

  • Credit Cards
  • Personal Loans
  • Vehicle Loans
  • Student Loans
  • Mortgage

It may not seem “fun” to put your tax refund towards your debt, but it is smart. Several years down the road, you’ll have many more dollars to show for it. Then, you can do something fun like splurge on a vacation or gift for yourself.

Learn more about debt management, including the difference between good debt and bad debt here.

Cut Future Costs

Another smart way to use your tax refund to save more money, in the long run, is to spend it on things that protect you from future expenses. By spending a little money now on certain things, you can stave off expensive problems later.

Emergency Fund

If you don’t yet have an emergency fund, or if yours is underfunded, this is the perfect way to use your tax refund. An emergency fund will provide you with ready cash for unexpected necessary expenses (e.g. replacing the water heater or repairing the vehicle you use to get to and from work).


If you don’t already have insurance for the things in your life that could financially devastate your family, when you’ve got a windfall (in the form of your tax refund) in hand is a great time to remedy that. Insurance policies you should look into are:

Vehicle Maintenance

Regular maintenance of your car saves you money because your car will run more efficiently so you spend less on gas. It also helps you avoid costly repairs later.

For example, regular oil changes prevent your engine parts from wearing out. If you go too long between or without oil changes, your engine might even shut down completely. A new engine costs MUCH MORE than 3-5 oil changes each year.

Likewise, rotating your tires makes sure they wear evenly. This not only makes your vehicle safer, it will extend the life of your tires so you don’t have to buy new ones as frequently. This can save you hundreds of dollars over several years.

Use your tax refund to get a thorough annual maintenance of your vehicle and you’ll be able to either put off buying a replacement vehicle or have a much higher trade-in value down the road.

Home Repairs/New Appliances

Like your vehicle, your home requires a lot of maintenance. Also like your car, the maintenance will cost you far less than the damage you’ll incur if you avoid it.

The cost of home repairs can add up quickly. Here are some projects you might want to fund with your tax refund:

  • Replacing loose or damaged shingles on the roof
  • Servicing of your air conditioner and/or heating system
  • Power washing and treating the deck
  • Cleaning the chimney

Replacing old, inefficient appliances can also save you money in the long run. First, you should see cost savings on your electric bill. More importantly, you can take your time to find a great deal instead of paying full price if you have to replace it quickly when it breaks down.

Grow Your Money

If you aren’t carrying expensive debt, have a healthy emergency fund and ample insurance, and don’t have trouble staying current with your home or vehicle maintenance, you have a wonderful opportunity to increase your tax refund substantially by investing it.

Save for a Major Purchase

Are you saving for something big like a family vacation or a used car for your teen driver? Invest your tax return in certificates

You’ll earn a higher interest rate than you would in a savings account. And since your money is committed for a set period of time, you won’t be tempted to pull money out and spend it on other things.

Invest in the Stock Market

If you want to grow your money even faster than a savings account or certificate, the stock market is your best bet.

Nervous about investing? Check out the Navy Federal Credit Union EasyStart Investor. It’s a low-stress way to learn about investing and to practice with small amounts of money.

Other investments to consider:

  • IRA – retirement savings
  • 529 – education savings
  • Health Savings Account – depending on your healthcare plan

Invest in Yourself

Finally, consider using your tax refund to invest in yourself. Invest in education to improve your skills in an area that makes you more marketable.

Or, if you’ve been thinking about starting your own business, consider using your tax refund to cover your business start-up expenses. Maybe taking care of those fees will be the final hurdle you need to overcome to launch!

Should You Change Your Withholding?

As a military family, we are sometimes entitled to special tax benefits (military readers – check out 6 Tax Advantages Military Members Need to Know). Consequently, we sometimes end up with a larger refund check than expected.

One year the amount was so large, I realized I could have made a hefty amount of interest if I’d invested the amount instead. Since the IRS charges a fee if you underpay taxes too much, shouldn’t they pay us interest when we overpay?

Sadly, that’s not how it works. So, the next best solution is to adjust your withholding to get more of your money during the year, right?

Maybe. If you’re getting several thousand dollars back every year, then yes, you should probably adjust your withholding so you don’t pay as much tax throughout the year.

However, if you’re getting $1000 or less, you’re probably better off leaving things as they are so you don’t risk underpaying taxes if there’s a major change in tax law during the year. Also, if your income changes during the year you might move into a new tax bracket, meaning higher taxes.

Of course, I’m not a tax attorney, CPA, or any other certified tax professional so this is just my opinion. Personally, the few extra bucks I’d make in interest (assuming I invested the extra each month instead of spending it), isn’t worth the risk of paying a fee to the IRS in the event I miscalculated my expected tax obligation.

What’s your favorite way to spend your tax refund? Please share it with us in the comments.

2 thoughts on “Smart Ways to Spend Your Tax Refund”

  1. We tried readjusting our with holding one year. We batched it up (withheld too little – ended up not catching it for 2 months, but we did catch it before it hurt us too much). My advice to others is to be very careful with changing your with holding amounts. It did help in the long run, correcting our with holding amount. If you are friends with someone who has knowledge in this area, like a CPA, ask them for advice.


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