3 Money Moves to Make With Your Tax Refund

Early Internal Revenue Service early data shows the average tax refund will be about 11% smaller this year, compared to last. They say it's largely because pandemic-related tax credits and deductions have expired for many families. There were no stimulus payments in 2022, so taxpayers won’t be receiving those additional payments either.

Those benefits ended just as a new Bankrate.com survey showed 43% of Americans polled say this year’s refund is extremely important.

Lauryn Williams, a certified financial planner in Dallas and founder of Worth Winning, said she would agree.

“You shouldn’t look at your tax refund as free money,” Williams said. “That is money that you earned during the year, and it is rightfully yours. Uncle Sam held on to it for a bit and now you are getting it back, so its important to make good decisions with it.”

She said to start with your emergency fund.

“We’ve heard the statistics that most Americans do not have money to cover even a $500 emergency. So, if you don’t have any sort of emergency fund, it’s time to start putting a little aside for that. While it’s not the most exciting thing, using a portion of your tax refund for that is always a good start,” Williams said.

Secondly, she said to invest in yourself.

“This is one of my favorite things to tell my clients about. We need to be saving for retirement, of course. But when I say investing in yourself, I mean maybe using some of the money to earn the business certificate you need so you can get your side hustle off the ground. Maybe going to a class that you have been putting off elevating your career. Even investing in your mental health. Those things can get expensive and using some of your refund towards those is an investment in your future,” Williams said.

Third, make your money make money.

“When we talk about savings, often people get bored with just putting the money in the bank. But your money can be making money if you put it in a high yield savings account. We weren’t earning much on our money. Now, there are some of these accounts where you could earn more than 4% return on your money and there is no catch,” Williams said.

She said it is also important to remember that getting a large refund isn’t all it’s cracked up to be. This means you gave the government an interest-free loan throughout the year. So instead, do the math when it comes to your paycheck. You can adjust your withholdings in your paycheck which will increase the amount of money you receive when getting paid throughout the year.

“Working with a professional to do that is important because if you adjust correctly, your refund should be as close to zero as possible, leaving you with more money every month into savings or to invest,” Williams said.