It’s tax refund season. The IRS has already issued 22 million refunds at an average of $3,536 each. That’s up from last year, when the average refund was about $2,800. That’s a pretty good chunk of change. Now, the question is, what do you do with that windfall? Here are some suggestions.
Build Your Fund
Most people could use more padding in their emergency funds. As USA Today points out, a recent report found that almost half of Americans have less than three months worth of income stashed in their emergency accounts. If you’re falling behind, use your refund to build your emergency savings back up. Ideally, you want enough saved to cover six months of expenses.
Pay Down Debt
If you have high interest debt, like credit card debt, use your refund to pay it down. High interest debt can accumulate quickly. Use your cash windfall to wipe it out or put a big dent in it. A lump payment can make digging out of debt much easier.
Let’s say you already have a stocked emergency fund and you don’t have any high interest debt. The next move for your tax refund might be to max out your retirement savings contributions.
By now you’re probably yawning at some of our suggestions for your refund. And we get it. That’s why we want to make sure we mention that yes, you should use some of that refund on something that makes you happy. Just not all of it!