How to Spend and Save Your Tax Refund Responsibly

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While tax season has just ended, many people are still receiving their U.S. government and state tax returns. Assuming you didn’t owe taxes, it can be daunting deciding what to do with this sudden influx of cash. Though buying a brand new, high-end television can be very enticing, there are much better, more responsible ways to spend (or save) your tax return, and here are just a few:

Pay Down Your Credit Cards or Other Kinds of Debt

You worked hard all through the previous year, and seeing a large sum of money in your bank account can often make you feel like you deserve to treat yourself. However, one of the best things you can do with your tax return is to pay off some or all of your credit card debt. It is important that you seriously consider how you will go about paying off your debt.

Paying off the entire balance on a credit card is a good option. Doing so immediately stops it from gaining interest. It is best practice to try and pay off your credit card debt as quickly as possible because you’ll pay less in the long run. If you don’t have enough cash from your return to pay off the balance, it may be a better idea to structure your refund so that you can at least pay off a bit more than the monthly minimum for as long as possible.

It’s important to reassess your debt to figure out which taxes have the highest interest rates and prioritize your spending from there.

In a perfect world, you would be able to pay off the entirety of your debt with your tax return. Many people rely on their returns to help pay for rent and the basics. If this is the case, it is important to develop and implement a tax-return specific budget, ensuring that the money is going where it is needed the most.

Creating a budget and sticking to it is one of the best ways to become debt-free.

Save It

There are other smart ways to spend your tax refunds if you don’t want to work on paying off outstanding debts. If you feel your debt is under control, saving your return is a great idea. Starting up a retirement or college savings fund with a good amount of cash can set you up for success later down the road. Even simply putting the money away in your “rainy day fund” is better than blowing it on a single big-ticket item.

Many people these days feel like they can’t save due to the rising cost of living and find themselves essentially living paycheck to paycheck and unable to save for potential emergencies. But having an emergency fund at hand is incredibly important. If you don’t already have one, or your current one is lacking in funds, putting some or all of your return into emergency savings is a smart move.

If you have sufficient emergency savings, now might be a good time to split up your return to cover itemized expenses that you may want to purchase down the road. If you’re looking to save for a down payment for a house, a new car, a well-deserved vacation, or even more flippant expenditures that you’ve been putting off throughout the year.

Invest in Your Long-Term Health

Another smart idea for what you can do with your tax refund is to take care of any pressing medical issues that need attention. When you put off going to see the doctor, you run the risk of ailments going undiagnosed and worsening, making them more expensive to address when they can no longer be ignored.

For example, neglecting regular dental checkups can lead to painful and expensive root canals and other serious dental work later on. The same is true for basic checkups and eye care.

In fact, you can actually save money by getting some procedures done. For example, getting LASIK done can save you loads in glasses and contact prescriptions over the years — plus, you won't have to worry about repairing or replacing broken or lost eyeglasses.

You can also invest in other things that will help you to better monitor your health, such as workout applications, wearable technology, and more.

Tax returns don’t have to stress you out, as long as you make smart decisions with your money. Take care of yourself physically and financially. Once you’re free of debt and have taken care of your personal needs, you’ll be able to spend that return on something more exciting.


Indiana Lee is a writer from the Pacific Northwest who enjoys writing about personal finance, social justice, and politics. You can find more of her work at on Contently at indianaleewrites.contently.com.


Josh founded Money Buffalo in 2015 to help people get out of debt and make smart financial decisions. He is currently a full-time personal finance writer with work featured in Forbes Advisor, Fox Business, and Credible.