Making the Most of Your Tax Refund in 2016: Ideas for Saving & Spending

You paid your dues to Uncle Sam all year long, plus maybe a little extra that you’ll get back as a refund soon. Financial experts recommend making sure your refund is as small as possible each year (after all, a big refund means the government’s been borrowing your money), but the average tax refund last year was $2,800, and that’s no small chunk of change. So it’s smart to think about what you want to do with your refund when it comes.

If you want to make your money work for you, these are the best and most sensible ways to do it.

The smartest thing you can do with an unexpected payout is dedicate it to your debt. Take your tax refund and make a payment towards your student loans, car loan or even your mortgage. And if you carry credit card debt, this option should be a no-brainer. Opt for the snowball method (explained here) and pay off a small balance, or throw the cash at whatever card has the highest interest rate.

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Sock it away–all of it–into savings. Experts recommend keeping three months’ worth of expenses in an emergency fund, so if yours is lacking, that’s a good place to start. Otherwise, you can make a payment to your retirement account or even a savings bucket you’ve had earmarked for a fun vacation.

That thing that’s been nagging you? The loud dishwasher or the cracked window? Now’s the time to finally deal with it. You tend to sleep on non-essential repairs like these for a while until you have the money, but guess what? You’ve got the money right now.

I’m not going to tell you to spend recklessly, but if you have your finances under control otherwise, there’s nothing wrong with using your refund to buy a little something nice for yourself.

If you really just want to treat yo’ self with your refund, the best way to spend a small windfall is to splurge on a high-quality piece. Go on and replace your worn-out work tote with a brand new leather bag. Get the sofa you’ve been eyeing online. Or trade up for that Miele vacuum cleaner you’ve always lusted over. Make it count and don’t let your lump sum whittle away little by little into bar tabs and trips to Target.

If you have quite enough stuff already, spend your refund money on a memorable experience. Take a trip, go skydiving, get your first tattoo or spend it all on one spectacular and, yes, potentially life-changing meal (with the good wine) at the best restaurant in the city.

Do you get a refund each year? How do you intend to spend it?