Smart Ways to Spend Your Tax Refund

— Written By Shameca Battle and last updated by Megan Reid

Once you file your taxes and find out the amount of your refund, you have a little time to decide how to spend it. Use this time wisely and come up with a money-smart plan; if there’s enough left over, earmark some for a little bit of fun as well. Here’s a roundup of smart ways to spend your tax refund.

Start an Emergency Fund. Work toward having three to six months’ worth of living expenses in savings. Any emergency savings is better than none.

Pay Down Credit Cards. Pay off one card, or pay down the balances on multiple cards, prioritizing those with the highest rates, and think of all the interest you will avoid paying.

Make an Extra Mortgage Payment. Extra money you put toward your mortgage should go directly toward your loan‘s principal to reduce the total amount you’ll owe. You’ll have more equity in your home and pay your mortgage a little sooner.

Fund Your Child’s 529 Plan for College. The 529 plan is a tax-advantaged method of saving for your child’s higher education cost.

Treat yourself. Of course, just like your everyday budget, it’s not a bad thing to allocate a portion to having fun. Spending money can be like healthy eating – if you don’t splurge a little every once in a while, you’re more likely to binge eat (or spend) when you feel restricted.

Beware of a few easy traps you can fall into around tax season. Retailers, car dealerships and credit card companies will all try to take advantage of your tax refund, and will offer some tempting sales and financing. Stick with your plan and do your research on any major purchases to make sure you really are getting the best deal.