Many people look forward to receiving their tax refunds. The IRS refunded nearly $245 billion to more than 86 million people in 2024, with the average refund being $2,850.
While it may be tempting to splurge on things like a vacation or other fun purchase, your tax refund provides an opportunity to make progress on any financial goals. Here are some smart ways to use your tax refund.
Create an emergency fund
An emergency fund is critical to your financial future. It gives you a monetary cushion for any unexpected life events, like a job loss, medical emergency or major repairs, which could require large amounts of money.
A survey from the U.S. News & World Report found that 42% of Americans don’t have an emergency savings fund.
Using your refund to start or even replenish an emergency fund could make things easier should anything unexpected arise.
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Pay off any debt
If you have a credit card balance to pay off or any student loans you’re still paying off, your tax refund could go towards paying some of it off.
Setting up a college fund
If you have children or grandchildren, you could even contribute some of the money to their college fund. Setting up a 529 fund could go a long way in helping out with school expenses in the future.
Make home improvements
A tax refund could help with things needed for the home, like new appliances, which could be a difficult expense to fit into your budget normally. The money could also be put towards larger home renovation projects.
Boosting retirement savings
If you are more focused on financial planning for the future as opposed to an immediate need, putting the funds toward a retirement account like a traditional or Roth IRA could help.
Setting the money aside allows for your money to grow due to high interest.