If you’ve received a tax refund in the past, you know how that money can feel like a pleasant surprise or a bonus. You may have treated your refund (whatever its size) as a surprise gift and spent it on a vacation or a big purchase you otherwise wouldn’t have been able to comfortably afford. If that was you, it’s time for a hard truth: Treating your tax refund as a total windfall you can spend on whatever you want isn’t a good financial decision. (And that’s ignoring the fact that the money is technically a result of you overpaying on taxes throughout the year.) They may not be glamorous or exciting, but there are smart, responsible ways you can put your tax refund to work for you—ways that can actually earn you even more money or otherwise set you up for future financial success. If you can resist the impulse to spend your tax refund on unnecessary splurge items, you can make some positive money moves; it just takes a little restraint and some financial know-how. Even if you feel pessimistic about the likelihood of receiving a tax refund this year, it doesn’t hurt to think about what you might do with a refund. This could be the year you straighten out your finances, after all, and one (or several) of these smart uses for your tax refund could be the first step. If you don’t have any money set aside for emergencies, use your tax refund to start a savings account that you only use if there’s a real crisis. Any cushion is better than nothing, and this first deposit could help kick-start your savings. If you have a small rainy day fund set aside, consider adding to it to be better protected against the unexpected; many financial experts recommend saving three to six months’ worth of expenses in an emergency fund. Roth IRA contribution limits are relatively low ($6,000 in 2022, or $7,000 if you’re 50 or older), so you’ll want to ensure you’re not surpassing that limit, but adding your tax refund to your retirement savings is one smart way to put that money to work for you, even if you won’t reap the benefits for a few years.
