It’s tempting to splurge when that tax refund hits, but remember—this isn’t free money. It’s your hard-earned cash that’s been sitting with the government interest-free. Instead of spending it all at once, consider ways to make it work for you.
The average tax refund in 2024 is around $3,000, but according to Credit Karma, only 40% of people plan to save it. Financial experts suggest using this lump sum to build wealth, pay down debt, or invest in your future.
“We see this trend every year,” says Lisa Greene-Lewis, CPA and tax expert with TurboTax. “For many, this is the biggest check they receive all year, and they look forward to using it for major expenses or debt payments.”
But the smartest move? Making your money work for you.
Pay Yourself First
“Maximizing your refund starts with setting money aside,” Greene-Lewis advises. If you don’t have an emergency fund, this is the time to start one. Experts recommend saving 3-6 months of expenses, but even $1,000 in a high-yield savings account is a solid start.
Look for accounts with a strong annual percentage yield (APY) and no maintenance or withdrawal fees. Shop around before choosing to avoid surprise charges.
Invest in Your Future
If your emergency fund is set, consider maxing out a Roth IRA (the 2024 limit is $7,000 if you’re under 50). Paying taxes now means tax-free withdrawals in retirement—something your future self will thank you for.
For beginners, low-cost index funds tracking the S&P 500 are a great way to start investing, offering exposure to 500 major companies with historically solid returns.
Pay Off High-Interest Debt
Credit card debt with 20%+ interest? Using your refund to pay it off is like getting an instant return on investment. If you’re paying 24% interest, eliminating that debt is equivalent to earning a 24% return—something no other investment can guarantee.
Fund Your Side Hustle
If you’ve been thinking about starting a business, your refund could be the seed money you need. Whether it’s launching an online store or getting a certification, investing in your skills can lead to higher earnings.
“The money you invest in your business may be tax-deductible,” Greene-Lewis notes. This includes expenses like equipment, marketing, website development, and even a home office.
Level Up Your Skills
Sometimes, the best investment is in yourself. Consider using your refund for courses in digital marketing, project management, or coding. Education credits like the American Opportunity Tax Credit (up to $2,500) can help if you’re pursuing a degree.
The Bottom Line
Treating yourself is fine, but balance is key. Set aside 10-20% of your refund for fun and put the rest toward long-term financial goals.
And if you’re getting a big refund every year? Consider adjusting your withholdings so you get more in your paycheck throughout the year instead of giving the government an interest-free loan.
