10 Smart Things to Do With Your Tax Refund

If you’re getting a tax refund this year, you probably can’t wait to splurge on a flat screen TV, new shoes, or a vacation. But why not do something more prudent this year? Start a new tradition of finding something smart to spend your cash on.

The average IRS tax refund in 2019 was $2,725. That’s a chunk of change. Here are 10 things you can do with your return that will help you have a better 2020.

Start an emergency fund

For years, I never had an emergency fund — the six months in basic expenses that financial experts tell you to accrue. When you’re living paycheck to paycheck, saving can feel impossible. Instead, I relied on my credit cards as a safety net for unexpected expenses — accumulating credit card debt that would make it even harder to pay for future emergencies.

Tax returns are a perfect solution to this conundrum. Instead of spending your return on something you don’t need, use it to start (or build up) your emergency fund in a high-interest savings account. You’ll be amazed at how much it will grow once you take the initial step and start paying yourself first.

Pay off credit card debt

The last credit card I paid off had an interest rate of 29.99%. Think about all the money I threw away each month, while only making minimum payments on my debt. This year, use your tax return to eliminate a chunk of your debt — or better yet, to get rid of it altogether. You’ll start to see the light at the end of the tunnel, and before you know it, you’ll be saving money instead of paying off debt.

Upgrade your work wardrobe staples

Definitely don’t blow your whole refund on professional attire. But it does pay to dress appropriately at work, or to dress to impress at job interviews. Aiming for that big promotion? Invest in a new suit or a few key separates (a great blazer, pencil skirt, or slacks) that can be mixed and matched. Looking the part will show your boss that you are professional, that you take your responsibilities seriously, and that you’re ready for the next level.

Buy some stock

In the audiobook “The Millionaire Next Door,” author Thomas J. Stanley told the story of Teddy Friend, a man whose parents were never able to save because they never earned a high enough income. But over a 46-year period, that family financed a smoking habit that included 50,377 packs of cigarettes. If they’d invested that money, they would have had a portfolio worth over $2 million dollars.

Investing is really the best way to build yourself a secure future. When you account for inflation, money you leave sitting in a savings account is actually shrinking over the years. The only way to keep that nest egg growing is to invest as much as you can afford, as responsibly as you can.

Be sure to do your research. And don’t drop your entire tax refund into a single fund that might halve in value overnight. Consider safer, longer-term investments like index funds or retirement accounts. If in doubt, seek professional advice, and always be aware of the risk inherent to investing in the stock market. If you can afford it, consider hiring the services of a low-cost wealth management company.

Pre-pay your vacation

Always wanted to take that trip to Paris? Rather than financing your jaunt with your credit card and racking up interest, why not save up for that vacation before you go? Paying in full up-front is the best way to make sure you never accumulate debt. You’ll not only be helping yourself financially in the long run — you’ll also save yourself a lot of stress while still on your trip.

Home improvements

Let’s be honest, you won’t remodel your home on $3,000. But you can make small but meaningful improvements that will boost the value of your home. Whether you grab a few plants and spruce up your home’s curb appeal or add a backsplash in the kitchen, you are sure to see a return on your investment. Don’t have $3,000 to blow on your home? Here are 20 ways to redecorate/renovate your home for under $100.

Make an extra mortgage payment

With just one extra payment made a year, you can shave down a 30-year mortgage to just 26 years. Committing your tax refund to your mortgage every year will get you that much closer to owning your home. It will also protect you down the line, if you find yourself short on a given payment.

Seed fund your own business

Whether you’re selling homemade soaps on Etsy or designing websites, starting a business is a great way to turn your passion into your profession. Use your tax refund to seed fund your passion project, and you’re sure to see returns. Not only will you be able to write off some of the expenses — you’ll also be generating another source of income. Not sure how to start a business on a budget? Learn “How To Turn $5 Into Your Dream Company.

Get something you need

In serious need of a new set of tires, but worried you don’t have the budget? Or is there a medical appointment you’ve been putting off? It pays to take care of things you or your family really need while you have the cash. Take care of it now and eliminate the risk of having to handle a bigger, more expensive emergency later.

Invest in your career

Whether it’s an online certification, a coding bootcamp, or a course to learn a new skill held at your local community college, this is your chance to do it. A tax refund is often just enough to finance a major upgrade in your professional skillset. And investing in yourself can be the most profitable investment you ever make.


When the government hands you a fat stack of cash, even the most frugal among us are tempted to spend it frivolously. But if you resist temptation, you can invest in your future. Your refund can help you accelerate toward home ownership, pad your retirement, or take a step forward in your career.

Before you can get started, of course, you’ll need to fill out your taxes and maximize that refund. These tax preparation firms can help you get the most out of tax season.

Or if you’ve got your refund in hand and you’re ready to dig into the world of investing, these investment advisors can guide you toward profitable investments.