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How to spend a tax refund

Are you getting a tax refund? While you may have a few ideas for how to spend it, here are some smart ways to use your tax refund.

how should you spend your tax refund

If there’s one way to get even a teeny-tiny bit excited about preparing your taxes (especially in light of recent tax law changes, which may change the way you file) it’s thinking about getting a big refund check at the end of the process. In 2018, the average refund check was $2,769, according to the IRS. And due to the changes in the tax code, tax refunds could be up 26%, according to Wall Street firm Morgan Stanley.

So how will you use your refund? Chances are, you have some ideas already. If you’re looking for ideas to use your refund in a smart way, here are a few to consider.

15 smart ways to spend a tax refund

  1. Home renovations or upgrades. If you’ve been waiting to buy a big ticket home item, a large refund check may help you buy it without putting it on credit. Here’s a bonus tip: if you have the cash to pay for the item, consider putting it on a credit card to rack up the points. Just remember to pay the balance immediately to avoid interest charges.
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  1. A vacation. “Every year, we put our refund toward a family trip,” says Beth, a mom of three in Ocean Township, New Jersey. “I know the refund is our money, but something about getting the one-lump sum makes it feel like a bonus.”
  2. Pay down debt. If you have high-interest debt, putting this money toward paying off the debt can be a great way to reduce interest payments and take positive steps to gain control over your finances.
  3. Summer camp. It’s convenient that refund checks roll around in February and March, right when payments for camp and other summer activities are due. Kate, a mom of one in Wellesley, MA, is counting on her refund to pay for tuition for her daughter’s day camp. Double check payment due dates — some camps offer the lowest pricing to families who sign up early. Rates can jump in the spring.
  4. Life insurance. Of course, as a life insurance company, we’re going to suggest life insurance. But you may be surprised at how affordable term life insurance policies are. For example, a 29-year-old female nonsmoker in excellent health might pay $26.83 a month for a $500,000, 30-year-policy.
  5. A session with a financial planner. If you’ve always meant to get your finances in order but have not yet had the time, consider using some of your refund on a session with a financial planner. How financial planners charge varies, but many charge a one-time fee to meet with you and set up a plan. You may want to continue to work with a financial planner as you refine your financial strategy, or you may find that a single session is enough to help you figure out your next moves.
  6. Will or estate planning. The money you get back from a tax refund could be used to get your financial life and documents in order. The price of will and estate preparation may depend on the complexity of your needs, and getting this task done now can give you peace of mind. Haven Life customers can get an online will at no cost at Trust & Will (subject to state availability).
  7. A charitable donation. Sometimes, the best way to spend is to give. If there’s an organization that’s particularly meaningful to you, it may make sense to donate some of your tax refund to that organization as a way to leave a legacy.
  1. Invest. Does your 401(k) or Roth IRA need some beefing up? You may be considering investing your refund, which will also give you tax benefits for your next filing year. Be sure to discuss with your tax advisor. If you’re self-employed, you might also want to speak with your tax advisor about setting up a SEP IRA, SIMPLE IRA, or Solo 401(k).
  2. Pad your emergency fund. A rule of thumb is to have enough money set aside to pay for at least three months of expenses. An emergency fund that has six months’ expenses, however, could make even better sense, since a large medical bill or unexpected home or car repair can easily decimate that fund.
  3. Contribute to a 529 plan or other education-savings plan. As you may know, private K-12 tuition can be paid for with money invested in a 529. You may also wish to consider other ways to save for education, including Coverdell ESAs, private college-savings plans, or a custodial investment account for your child.
  4. Pay a big expense. “It’s not fun, but we earmark our refund check to pay our property taxes,” explains Mark, a dad of two in Portland, OR. “I figure, tax payments aren’t fun, and I don’t think refunds should be spent on fun things either.”
  5. Save for a down payment. If you’re considering owning instead of leasing a car, a tax refund can be a great way to make a down payment. That’s what Chrissy, 26, a mom of two from Highlands Ranch, CO, did. “It was so awesome to have that money in my account and write that check. It was my first new car, and driving away from the lot felt incredible.”
  6. Plan for the holidays. If the holidays — and the holiday bills — are still fresh in your mind, it may be a good idea to put your money away to make sure you can comfortably afford travel, gifts, and celebrations the next time the holidays roll around. “We have three kids, and we always go to visit our parents in Colorado. The prices are sky-high at the holidays, so we put our refund away and use it then,” says Shari in Kissimmee, Florida. Consider parking that cash in a high-yield savings account, which tends to pay higher interest than traditional brick-and-mortar bank savings accounts.
  7. Treat yourself! You deserve it. Whether it’s a special dinner out, a product you’ve been eyeing, or a family fun weekend, it’s okay to use some of your money on something that’s just for fun. After all, you’ve earned it!

Think about the reason for the refund

Don’t forget to think about your cash flow for 2019, and possibly a change to your withholdings. Your refund check may feel like a windfall, but it’s not. It’s money that you earned and then overpaid to the government. If you get a high refund, that’s a sign you may be having too much withheld from your paycheck. It may be a good idea to review your withholdings so that you get a little more on your paychecks instead.

Owing a large tax bill or getting a large refund are two signs that you may need to review your withholdings. The recent tax law changes may have changed the way you file — for example, maybe you and your partner decided it was better to file separately than jointly — and circumstances such as self-employment, having another child, or going from renting to owning a property may change your overall tax bill.

Working with a tax pro may be a good way to make sure your withholdings are on track and set you up for success in 2019.

For now, take a deep breath and pat yourself on the back — you got through tax season, and have a refund check to show for it.

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Anna Davies is a writer, editor and content strategist living in Jersey City, NJ. She has written for New York, Glamour, Elle, Men’s Health and others and has written 13 young adult novels under various names. Her favorite things to spend money on are discount theater tickets, oversize sweaters, and cold brew lattes.

Haven Life Insurance Agency (Haven Life) does not provide tax, legal or investment advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or investment advice. You should consult your own tax, legal, and investment advisors before engaging in any transaction. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.

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About Anna Davies

Anna Davies is an innovative copywriter, magazine editor, award-winning essayist. She has written for The New York Times, New York Magazine, Refinery29, Glamour, Elle, and others, and has published 13 young adult novels. She lives in Jersey City, NJ, with her family and loves traveling, running, and trying to find the best cold brew coffee in town.

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Our editorial policy

Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

Our disclosures

Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.

Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit:

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