How to Spend Your Tax Refund Check

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Sometime over the month or two (depending on how proactive you are about doing your taxes), you’ll probably be getting a nice fat refund check. Last year, the average tax rebate check was a princely sum at over $2,500. If you’re one of the many millions getting a check, you have a pretty big decision ahead of you. Do you pay down some of your credit card debt or put it in savings? (CD rates are looking better lately)

If you aren’t sure what you are going to do, here are a few ideas:

Keep Some For Yourself

I’m a firm believer that most of us want to be disciplined but few of us are able to follow through unless we can blow off a little steam. As much as it may make financial sense for you to take the entire rebate check and put it towards savings or towards paying off debt, the reality is that you will want to take a little bit on something fun. By giving you and your family a little bit of fun, you don’t feel like you’re constantly deprived. Saving is good, but if you never enjoy the fruits of your labor you’ll find yourself cheating… and that’s bad.

So take a bit and treat your family to a nice dinner out or a fancy dinner in (you should try making Provençal Rack of Lamb, it’s not a terribly difficult recipe I promise. Take everyone out to the movies or perhaps to a show. Whatever it is, be sure to do something you really enjoy so you don’t feel deprived. What about the rest?

Emergency Fund

If you don’t have at least six months of expenses saved in an emergency fund, I recommend putting your tax refund check towards one. We have 12 months of expenses saved up in a CD ladder (check out the best CD rates) to maximize the interest we can earn risk-free. An emergency fund is a financial necessity, especially in our tough economic times, because it can help you weather all the potential problems you might face in the future.

Remember, never put your emergency fund at risk. Don’t put it in the stock market and don’t borrow from it for non-emergency purposes. The only reason you should be touching the funds is if you have an emergency.

Pay Down Debt

If you already have an emergency fund and you have some credit card or other high interest debt, consider putting all or some of your refund check towards paying the debt. High interest debt is akin to wearing an anchor around your neck. You don’t want your debt making decisions for you, right? So Your financial progresses is slowed or even stymied by debt (it’s hard to get a mortgage when so much of your income goes towards a high interest credit card debt that may take years to shed)

Why should you save for an emergency fund before paying down debt? In the current economic climate, you may not be able to accumulate more debt in case of emergency so having that fund in place is crucial. Over the last year or two, we’ve seen credit card companies slash credit limits in an attempt to lower their risk. By boosting your emergency fund first, you don’t risk losing unsecured credit at a time when you might need it most.

Or, if happiness is what you seek, giving away your money could be the key to happiness.

What are you planning to do with your tax refund check?

{ 44 comments, please add your thoughts now! }

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44 Responses to “How to Spend Your Tax Refund Check”

  1. javier says:


    Nice post!

    The approach I have about tax refund money is the following: Free money to invest. I normally don’t expect this money, so I invest it in what I think will make my life easier or better.

    Obviously it depends on your personal situation, what makes your life easier or better? Paying down debt, save money for financial security, starting a home based business,…

    Best regards,

  2. Thanks for a timely article!

    In the past we lived year-end to year-end (vs paycheck-to-paycheck), but now that we almost paid off our house (sometime this month), our savings patterns with respect to our refund, will be drastically (I hope :)) different!

  3. Taylor says:

    Just in this for great article.

    Well this year. I have a huge Dental bill that I must finished paying on so that is where my money will be going. Normally, I will put half in my 401k and the other half is spent on a summer vacation for myself.

  4. mgessford says:

    Mine will go to helping pay for my wife’s recent orthodontics. Dentist told her if we didn’t get her bite and alignment fixed, she’d probably need dentures at the ripe old age of 50, due to enamel wear. Seems like a great investment to me!

  5. Dave says:

    Half went to pay down some debt, the other half went to my daughter’s 529 plan.

  6. About half went into 529 plans for the two kids. Iowa allows you to deduct 529 contributions from state taxes – which is nice, since our marginal state rate is 7-8% (we’re not overly rich, the rates are just higher than surrounding states).

    The other half will get sucked up by the increase day care expenses during the year …

  7. I still have to get together my taxes, but when I do get my refund check, I’m putting it towards my Roth to serve as a multipurpose retirement fund and emergency fund.

  8. NCTaxPro says:

    Great article, Jim!

    If you are getting a large refund, and there’s no EITC in it, then I have to ask why you are loaning so much money to the government, interest-free, every year – you should take a look at your withholding and consider having less taken out.

    I understand Jim’s point about having an emergency fund, but with the Federal Reserve’s insistence on keeping interest rates low for the foreseeable future, I think I’d prefer to shed high-interest debt now and wait for a better investment environment (which I don’t think is all that far away) to build up a reserve.

  9. Seth @ Boy Meets Food says:

    Wow, 12 months worth of expenses… that’s great. Unfortunately, with having a house that I rent out, it means 2 mortgages. Sure, one is covered by the rent money, but I still count it as an expense, so it makes 12 months worth of expenses into a VERY large figure. I’m still working on getting up to just 6 months. 🙁

  10. CK says:

    What about hookers and ponies?

  11. Shirley says:

    Since the refund will be direct deposit to my CU checking which is linked to my ING savings, a simple click will move it. If I never see the actual money, I can easily save it. This may be self-delusion, but it works for me!

  12. Darren says:

    Good point about oversaving. Many times people promote saving so much, that we may sometimes lose sight of what we’re saving for. I agree that every once in awhile, we should enjoy the fruits of our labor and treat ourselves when we reach small milestones.

    I really dig your link to giving some of the money away as a means to happiness. I have not calculated my taxes yet, but if I get something back, I’m going to spend it on someone other than just myself.

  13. lostAnnfound says:

    We are getting a refund from Fed due to business expense that came up this year (computer died). Some to pay state taxes (didn’t pay all my quarterlies last year), one weekend of family camping, and the rest goes toward paying off debt.

  14. Buster says:

    You didnt mention that you can buy Series I bonds directly from the government with your refund.

    • Jim says:

      Good point. I didn’t put it on there because I don’t see it as much of a benefit that is since you can buy them any number of ways.

      • Buster says:

        The benefit is being able to have them sent directly to you by filling out a simple form on your taxes and not having to open an account. This si a new program this year.

        • Soccer9040 says:

          Good idea for people who like these bonds. Even better idea for the government to get their hands on a little more of your money. Remember they run the biggest Ponzi scam in the world. Use todays dollars to pay off yesterdays borrowings. Repeat endlessly.

  15. zapeta says:

    My refund went straight in to the emergency fund.

  16. javi says:

    I put my refund into my Roth IRA. That money will help grow for my future.

  17. ziglet19 says:

    We split our refund between our savings and finding a long overdue home improvement project.

  18. eric says:

    I don’t expect a fat check but I guess that’s a good thing.

  19. echidnina says:

    I’m putting mine towards my credit card – my goal is to have the card paid off completely and stop using it by the end of the summer.

  20. jsbrendog says:

    mine goes towards the ira. right into the ing ira savings account.

  21. mppaul2 says:

    So many options, so few funds…I will not get a large refund, but what little does come back will go to credit card debt and emergency fund savings.

  22. Rosa Rugosa says:

    Okay, tell me if this makes sense/cents. Only started EF last year, and have only been practicing wise expenditure of resources for 2 years. (Sad but true). Spent every cent that came in for all the previous years, but never paid a bill late in our lives. So husband just lost hated despised miserable job about a month ago. My focus is on paying off HE loan (our only debt) because if his severance and unemployment run out before he gets a job, I can carry our humble household on my salary – but only without the HE loan. We also could cash out his 401K to pay off HE loan if we had to, but I think that should be total last resort. Could also borrow from family if we had to. So I’m figuring tax refund on HE loan – which has a total balance of 49K, so the end is reasonably in sight. And if we could balance things, I would be perfectly OK with him doing some painting, baking, gardening etc. to make ends meet. I like my job on most days, and am reasonably secure in my employment.

  23. Ted says:

    I love the idea of putting some of the money into your pocket and letting it get spent. Every month, I put some cash in my wallet for a few regular expense (A weekly breakfast with friends) and for the random times when I just would like a coke. And that gives me permission to spend it because its a budgeted freedom. In the past, I spent way to much on myself- now its a great controlled expense. Controlled freedom.

  24. The Rat says:

    My thoughts are that if there is any debt, work on paying that off ASAP. If no debt exists, then invest it! Investing in strong dividend achieving equities will not only allow you to ‘get paid while you wait’ but also allow you to have more patience while you await capital appreciation.

    Nice thread.

  25. fetu says:

    Every tax return the first thing that is done is to make one extra monthly payment on the house….thus 13 payments per year. Really cuts down on years of paying a mortgage. After that my husband I split equally maybe a thousand between us ….to do what we each want to do with it….and the rest this year will go to the house repair a/c for some needed work.

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