Tax season is in full swing. Last minute returns have been sent in and tax refunds are rolling out to taxpayers across America. Whether you get a small tax refund or a massive refund you need to have a plan for those dollars. Without a plan you are likely to waste a big financial opportunity without even knowing it.

Should you save all of your tax refund? Spend part of it on yourself? Or invest everything? That decision is based on your current financial situation, but let’s dig in further to your options.

When the government hands you a giant check you have a lot of options as to what to do with the money. Here are 9 different ways you can spend, save, and invest your tax refund check.

Spending Your Tax Refund

The easiest thing to do is to deposit that big income tax refund check and spend away.

1. Spend it on yourself

Buy a new TV, take a huge vacation, and do whatever you want with the money.

As we all know the easy things to do aren’t always the best things to do. If you just barely scraped by the entire year it can seem easy to justify going out and spending on yourself.

However, if you just barely scraped by you probably don’t have much in terms of savings or an emergency fund. If you scrape by again this year and run into an emergency, you might find yourself in a serious position of having to take on lots of high interest credit card debt.

So if you want to spend on yourself, do so. It just might be wise to spend a little less than you want and sock the rest away for a rainy day.

That having been said there are some great ways to spend your tax refund:

2. Medical Checkups

There is nothing better to spend your money on than your own health. Without your health, nothing else matters. If you have been holding off going to the doctor or getting your teeth checked, spend the tax refund on these health items.

3. Home Repairs and Maintenance

Likewise if you have some home maintenance you have been deferring this is a great time to take care of those items. Get your HVAC system inspected, replace your struggling water heater, and so on.

4. Car Repairs and Maintenance

The same applies here. If you have been deferring maintenance on your vehicle you are inevitably going to have a large unexpected bill in the future. Spending a little money now to fix the issue can save you money in the long run.

Spending on maintenance of yourself, your home, and your vehicles is usually a lot cheaper than dealing with issues when something serious goes wrong.

Saving Your Tax Refund

You can virtually never have enough savings, but here are some specific things you could set your income tax refund aside for.

5. Emergency Fund

Having a solid emergency fund is one of the best things you can do to insure yourself of a stable financial situation. Every family should have a minimum of 6 months of expenses set aside; anything above that is just that much better.

Calculate how much you spend each month on average, multiply by 6, and set that number as a savings target. Your income tax refund can be deposited into your emergency fund to give you a great head start on reaching that goal.

6. Maintenance Categories

If you don’t have any pressing maintenance needs that you need to spend your tax refund on immediately, you can always set the money aside for when you will need to fund those fixes. Setting aside a specific fund for your home and car maintenance is like having an extra emergency fund. The only difference is this money has a designated purpose so when you do have to pay a major maintenance bill, you don’t feel bad about pulling the funds out of your emergency fund.

7. Future Fun

Have you been trying to save up for a major vacation or another fun purchase? Use your tax refund to bolster your efforts toward that goal. You are less likely to spend the refund on something between now and when you want to go on vacation if you give the money a specific purpose. If it is just sitting in your checking account you are much more likely to spend it than if you name it “vacation fund”.

Investing Your Tax Refund

Last but not least is investing for your future. Here are two methods to use your tax refund for investing.

8. Fund a Roth IRA

The easiest thing to do is to open up a Roth IRA and deposit the money there. With a Roth IRA you get to choose your investments. Focus on low cost index funds to start out to maximize how much investing you get out of every dollar.

9. Increase Your Other Retirement Contributions

Alternatively, you can leave your refunded taxes in your checking account and immediately increase your retirement contributions in other ways.

For example, if you get a $3,600 tax refund you could keep that money in your checking account and increase your 401k contributions at work by $300 per month. Instead of dumping all of the tax refund into the account immediately you do it slowly over time. This gives you time to adjust your strategy if you hit a significant bump in the road. (Or you might discover you can live without that $300 per month and still have your tax refund in your checking account at the end of the year.)

Using Your Tax Refund for the Best Financial Results

Tax refunds are a great thing if you use them wisely. You can summarize the strategy behind wisely using your tax refund this way:

  • Spend it if you have to
  • Save it if you need to
  • Invest it if you can