6 best ways to spend your tax refund (and avoid regret)
In 2024, the average IRS refund topped $3,138. Most Americans put their refunds toward essentials like savings, paying down debts, or bills. A tax refund i’s your money, back in your hands. Used wisely, it can build security and help you reach your goals.
In this article, we’ll explore some of the best ways to use your tax refund – whether you’re living abroad, building a financial cushion, or managing debt.
This article is brought to you by Taxes for Expats (TFX), a top-rated tax firm serving US citizens and residents worldwide. Need tax help? Explore our tax services or contact us for guidance.
Start an emergency fund
No savings? Start here. Even a modest emergency fund of $500–$1,000 in a high-yield savings account can be the difference between staying afloat and spiraling into debt after an unexpected expense.
Ideally, aim for three to six months of expenses, but any start is better than none.
Pay down high-interest debt
If you carry credit card or other high-interest debt, using your refund to pay it down can save you significant money in interest over time. Even a small payment reduces your balance and future interest charges.
- Debt avalanche: Focus on debts with the highest interest rate first for maximum savings.
- Debt snowball: Pay off the smallest balance first for a motivational boost.
The biggest mistake is treating a tax refund as extra money. If you have ‘free money,’ you’ll most likely spend it. If you’re serious about improving your financial health, give your refund a job.
Consider a balance transfer or tax prepayment
If you have good credit, a 0% APR balance transfer card can buy you time to pay down debt interest-free.
For freelancers and self-employed individuals, using your refund to prepay next year’s taxes can smooth out quarterly payments and reduce the risk of underpayment penalties.
Save for retirement
If you’ve got your debt and emergencies handled, you can direct your refund toward a Roth IRA or traditional IRA. Not ready for long-term investing yet? That’s okay. Build stability first.
Fund home or car repairs
If you’ve been putting off necessary repairs, your refund can help maintain or improve your assets – whether it’s fixing your car, upgrading appliances, or tackling home improvement projects.
These investments can prevent bigger expenses down the road and may increase your property’s value.
Use tax refund to learn and grow
A tax refund can be a stepping stone to higher earnings. Consider using it for professional development, certifications, or new skills. Even small investments in yourself can pay off in the long run.
Your tax refund is a tool. Used wisely, it can help you build a stronger financial future – no matter the amount. One of the smartest moves is to use your refund to unlock even greater tax benefits in years to come. By working with a tax professional, you can develop tax strategies that will help you keep more of what you earn and grow your annual refund.
