There’s nothing like the joy that comes from completing your tax return and discovering you’ll get a refund check headed your way. It feels like free money, and since it’s a surplus from tax you have already paid, you can make use of the full amount!
Some people save, some spend, some pay off debt – the choice is yours. If you join others who choose to spend some of their tax refund, that could help provide some economic stimulus in the short term, while using tax refunds for saving, investing, and debt repayment have longer-term economic benefits, according to a tax policy expert from the University of California, Davis.
As you make plans for this windfall, you may wonder how your intended uses compare to your peers. In this blog, we’ll dig in to how people used their tax refunds in the past few years and show how you can use Milli to get the most out of your tax refund dollars.
Popular Uses for Tax Refunds
Tax season is underway, and many Americans have already started receiving tax refunds. The IRS reports that as of February 9, 2024 (for those early-bird filers) the average tax refund is $1,741. How do people plan to spend it?
CNBC reports that the top priority is savings, with 28% of respondents opting for it. Next up is paying down debt at 19%, day-to-day expenses at 11%, investing at 9%, home improvements at 9%, vacation at 7%, and splurge purchases at 4%. They report that one anomaly is Gen Z, who plans to prioritize investing over paying down debt.
Are the plans for 2024’s tax refund money consistent with years past? Would you expect that most people save their tax refunds? If you guessed yes to both, you’re right! The percentage tends to change each year, but pretty consistently saving is the top choice.
For last year, 2023, Yahoo! Finance reports that this was the breakdown of how people used their tax refunds:
| Use for Tax Refund | Response Rate |
| Put it in savings | 25.75% |
| Pay bills | 21.16% |
| Pay off debt | 19.66% |
| Invest | 15.37% |
| Treat yourself | 5.99% |
| Travel | 3.59% |
| Donate | 0.90% |
In 2019, Statista reported that the most popular choice was savings with half of respondents saving at least a portion of their refund. Next up was paying down debt at 34%, 22% using money for everyday expenses, 12% for travel, 10% for home improvement, and 9% each for a major purchase or splurge purchase.
Overall, Americans are fairly responsible with their tax refunds, using the windfall to further their progress toward their financial goals and security!
Maximizing Your Tax Refund
If you’re looking for the best ways to make use of your tax refund, here are some quick suggestions!
- Get a jump start to your annual retirement contribution. Use a tax-advantaged account like an Individual Retirement Account, or bump up your 401(k) contribution to match the refund so you can set yourself up for success. If you use a pre-tax retirement account, you could bring down your taxable income for the next year which could keep the tax refund train going!
- Pad your emergency fund. Whether you’re working toward the goal amount of three to six months’ worth of expenses or topping it off to account for your current expenses, this money move can bring peace of mind.
- Make a dent on debt. Making an extra payment toward the principal of your debt can help in the long term if you minimize the amount of interest you have to pay back. Just make sure you don’t have any pre-payment penalties on the loan!
- Set it aside for a future purchase. Allocate the money into a Milli Jar for upcoming expenses on the horizon. Earn interest on the money while it’s in your Jar to help it go further, and if you see the item on sale, you can purchase it early!
- Plan a vacation. Almost half of Americans do not take all the paid vacation time offered by their employer. If you have PTO, make use of it and plan a trip to decompress or make memories with friends or family. Needs ideas to travel on a budget? We’ve got your covered with our blog post full of budget travel tips!
Conclusion
A tax refund can be a helpful windfall that can make it easier to make noticeable progress on your financial goals or cover upcoming expenses. If you’re getting a tax refund, be intentional about the best way to use that cash. Remember: it could be a combination of things!
Keep reading on the Milli blog:
Make the Most of Your Tax Refund with a High Yield Savings Account
Key Tax Terms You Need to Know
Get Started Guide: Paying Income Taxes
