Money in Wallet

Five Smart Ways to Spend Your Tax Return


The sun is shining, the flowers are blooming. You can feel it; spring is definitely in the air – and so is tax season! 

Tax Day, aka the final day Americans have to file their 2021 taxes, is Monday, April 18. And, if you’re one of the lucky 125.3 million Americans who will be issued a refund (which averages about $2,827!) from the IRS this tax season, you may be wondering how you’ll spend that extra chunk of change. 

But before you cash in that check from dear old Uncle Sam, you may want to reconsider that shopping spree on account of bettering your future self and financial goals. From building up your rainy day fund, to investing in your future, read on for our list of five ways to spend your tax return – smartly.

Start an Emergency Savings

Your car dies. You have unexpected medical bills. You lose your job. If you don’t have an emergency savings account set up, how will you fund your life and make ends meet? Experts recommend having anywhere from three months to one year of living expenses – that includes gas, groceries, housing (like rent or your mortgage) and utilities – in the case of an emergency or major life change. 

By using the cash from your tax return, no matter how much, to start an emergency fund, you’ll be setting up your future self for financial peace-of-mind in case, you know, life happens. 

Fund Your Financial Freedom

NerdWallet said it best – there’s no bigger drag on your bottom line than lugging around high-interest compounding debt each and every month. And, thanks to a check from the IRS, you may no longer have to. 

Instead, leverage the cash from your tax return to pay off high-interest debts like your credit card bill to head into the next fiscal year debt-free. That’s certainly a feeling you can’t put a price tag on! 

Put Money into Passive Income

Passive income (ie: earnings that accrue without having to have you actively involved in the earning process) is the number one key to financial independence. Examples include a rental property or stocks – basically anything that accrues revenue without you having to actively work around the clock for it.  

Investing once in a passive income source can have major long term benefits. By building up enough passive income overtime, you can cover your essential living  expenses and even redner your day job as optional

Boost Your Retirement Funds

Although it may not be the most glamorous way to spend your cash, you can use your return to make extra contributions to your retirement plans, like your401(k)s or IRAs. Just be sure not to exceed the annual contribution limit too early on in the year at the risk of losing out on the maximum contribution amounts. 

What is a Roth IRA? Read this to find out if it makes sense for you.

Invest in Yourself

Finally, one of the best ways to leverage your tax return cash is to reinvest it in yourself. Whether that means using the cash to get that degree you always wanted, or leveraging the money to finally fund the small business venture you’ve been dreaming of, the long term results will pay off. And, by using your tax return to fund it, you’ll be wisely investing in your future self and financial goals.  

While spending the extra cash from your tax returns on shopping and other “unnecessary” expenses may feel great at the moment, the impact is just that – momentarily. Instead, focus on these five tips to spend your savings wisely, while safeguarding (and even enhancing) your financial future. 


The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.

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