It’s tax refund season!  As tempting as it may be to take that extra couple hundred or thousand dollars and go shopping or book a vacation, why not use the money with some end goals in mind?  Being a responsible adult isn’t always fun, but in the long run you’ll be glad you were.

Check out these 7 smart ways to spend your tax refund:

  1. Contribute to your emergency fund
  2. Pay off debt
  3. Save for retirement
  4. Add to a savings account
  5. Put extra towards a loan
  6. Start a college fund for your children
  7. Get life insurance

Emergency Fund

Financial advisors recommend that you have enough cash in an emergency fund to cover 3 to 6 months’ worth of living expenses.  This may seem like an impossible number if you’re on a tight budget, but that tax refund can be instrumental in reaching the recommended goal.  You’ll rest easier knowing you have some money set aside for those just-in-case situations.

Be sure to have your emergency fund cash in an account that you can access easily and immediately if necessary.  For example, a savings account is a good option because there is no penalty to remove your money and it will earn interest.  (It’s important to note though that you can be fined if you make more than 6 withdrawals from your savings account within a statement cycle.)


Sometimes the idea of retirement accounts is just plain frustrating.  You sock away money into an account you can’t even touch for years.  However, keep in mind that once you hit your golden years the last thing you are going to want to do is work because you have to.  The younger you are when you open a retirement account, and the more you put into it early on, the better off you’ll be down the line.

In this economy, most of us aren’t saving as much as we should be for retirement.  This is when your tax refund can be extremely helpful.  Start building that interest for your glorious retirement now.

Savings Account

If you don’t have a savings account, shop around for one that offers a decent interest rate. provides good information on different savings account options.  A savings account is a good, easy-to-understand, low-risk method of building interest on your money.  Your tax refund would be a great starting amount.


It’s going to be hard to build an emergency fund or add to any savings or retirement accounts if you have a lot of debt.  A good rule of thumb to paying off debt is to start by first paying off the “bad” debt (as opposed to “good” debt which is money borrowed for a home or education) and the debt that has the highest interest rate.  This is usually credit cards.  If you have any credit card debt, use your tax refund to decrease it or eliminate it entirely if you can.  Credit card debt can be a tricky web that can be difficult to escape from if it gets out of control.


If you have a mortgage or car loan, consider using your refund to make an extra payment.  The more you put toward your loan, the less in interest you will end up paying.

College Fund

If debt is under control, you can always start helping with your children’s future debt.  Starting a college fund, like opening a 529 plan, will help with future college costs.  The earnings in a 529 plan are not subject to federal taxes or, in most cases, state taxes.

Life Insurance

A final, but certainly not least, smart way to spend your tax refund is to put it toward life insurance.  Term life insurance is very affordable and your tax refund can likely pay for multiple months of premiums, or you could choose to use your tax refund to pay your policy annually which will save you a couple extra dollars.

A healthy person in their 30s can get a term life insurance policy for less than $20 per month.  You would only need a tax refund of $240 to pay for an entire year of life insurance and then once next tax season comes around, do the same thing and it’s almost like you have life insurance for free!  (Not really, but you understand what I mean.)

Life insurance can be lifesaving, especially if you have children.  However, even if you don’t have children, you likely still could benefit from owning life insurance.  Take a look at our blog post I Don’t Have Children; Do I Still Need Life Insurance? for more information.

Sure, we think Hawaii sounds great too… but you know what will feel even better?  Saving money and ensuring your family is financially secure.


Photo credit to: Pictures of Money


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