Before we dive in, a quick note about a resource we genuinely recommend: Monarch Money. If you’re looking for a clearer, more complete picture of your finances, Monarch helps you track spending, manage budgets, and see all your accounts in one place — without the overwhelm. Many TFD community members use it to stay organized and make more intentional decisions with their money, and it’s a simple, low-lift way to feel more in control of your financial life. Get 50% off your first year with code TFD50 by signing up using our link.
By Holly Trantham
Happy Tax Day, everyone! I’m not going to pretend like this is a day of celebration, or that you should be absolutely stoked about what your taxes are going to fund. (Though I am personally thrilled with how some of my taxes are used here in New York City/state, such as paid parental leave and expanding free childcare for all!) I also don’t want to disregard the fact that we are not currently taxing billionaires their fair share, which alone could solve problems like funding universal healthcare and childcare in this country.
All of that aside, there are many personal considerations to take into account every year around April 15th, particularly if you get a tax refund. The average tax refund is around $3400 this year, and for many people, this is the one time of year they experience anything resembling a cash windfall, which begs the question: what do you do with a lump sum of cash you (likely) didn’t budget to receive?
First, determine whether your refund feels substantial.
Even if your refund is on the lower end, an extra few hundred dollars is going to mean different things to different people. Does the amount you are receiving feel substantial in your mind? How much of a difference would it make in your long-term goals?
Doing the math can help contextualize the difference your refund could make, if you’re deciding whether you want to save or invest it. Say you invested it, and assumed it earned 7% interest annually, compounded monthly. In 30 years (thanks as always to my favorite online compound interest calculator for doing the math for me):
$100 would turn into about $811.65
$1,000 would turn into $8,116.50
$3,400 (the average refund check) would turn into $27,596.09
So if you’re only working with $100, that may buy you about a week’s worth of expenses in retirement, if your estimated cost of living is relatively low. That’s not nothing by any means, but it’s also probably the kind of savings you could make up for elsewhere. The average tax refund, on the other hand, could potentially make a substantial difference in your long-term goals, maybe even covering a few months of expenses (or more!) in retirement.
Of course, your bigger month goals might be closer than retirement, such as debt payoff or saving for a house down payment. Your mileage will vary, so do the math for your own specific circumstances.
And if you are putting your refund towards a goal, I highly recommend using Monarch’s goal-setting feature. It makes it super easy to incorporate your goals into your budget, so that you don’t accidentally overspend and end up contributing less to savings or debt payoff.
Here’s a look at the quick budget check-in I see when I log into my app — my monthly goal progress (currently saving for ongoing childcare expenses) is right there alongside my spending and income:
Definitely check out Monarch if you’re looking for a budgeting app that actually helps keep you on track towards your long-term goals!
Then, consider what’s missing from your current spending/saving habits.
Listen: the Type-A Capricorn in me, who also happens to have written a book on intentional saving and spending, wants to tell you to put your entire tax refund into savings, or towards another financial goal like debt payoff. I really want you to take care of your future self, and that starts with developing the habits of saving and investing early and often.
But I don’t want to discount how difficult things are in ~these times~, and that for many people, a tax refund may be your singular chance of doing something nice-but-spendy for yourself. I’d recommend using this framework when determining how to best utilize your refund:
If you’re currently dealing with a lot of high-interest debt: Consider using your refund to pay some of this off. I know that is one of the most un-fun suggestions, but the amount you’ll save in interest payments over time, it’s probably worth it.
If you’re currently saving for the future, but don’t have much room in your budget for fun: Maybe let yourself live a little. Say, for instance, your tax refund is the one chance you have at affording a modest vacation this year. That’s not an investment in your future, but it could be an investment in your mental health and wellbeing, and that’s not nothing.
If you regularly have space to spend on just-for-fun things or personal hobbies: Consider putting more towards bigger goals like retirement or longer-term savings. That doesn’t mean you have to use all of your refund for “important” things, but think of this as an opportunity to contribute more to those goals than you maybe can usually. We always suggest following the 90/10 rule: use 90% of it for something practical, and 10% on something fun you wouldn’t normally allow yourself.
Once you’ve decided which direction you’re going — “practical” or “fun” — determine the best use for that money.
These are just a few suggestions! Think about what would make the biggest tangible difference in your own life, and go from there.
Practical: Top up your emergency fund (or start one for the first time).
Fun: Treat the group chat to a great meal, apps and desserts included.
Practical: Pay off a chunk of debt, especially high-interest debt like an amount you owe on a credit card.
Fun: Splurge on a mini weekend getaway. Pro tip: even fancy-seeming hotels are often way cheaper in the offseason!
Practical: Invest a big chunk in your IRA for 2026 or 2025 (Tax Day is always the last day to contribute for the previous year!).
Fun: Visit your local ~fancy~ vintage shop for a spring wardrobe refresh.
Practical: Save for next year’s taxes, if you’re a freelancer or business owner who owes quarterly.
Fun: Pamper yourself, whether that means with a day out at the spa, or a day of bed-rotting and ordering in for every single meal.
Practical: Start saving for your next big life milestone that still feels intangible, such as a future-home down payment.
Fun: Go to your favorite local bookstore, and let yourself buy as many books as will fit in your tote bag.
