Before letting a tax refund burn a hole in your pocket, remember that the government isn't sending you a bonus check.
"Basically for most people it means that you paid in more than you owe. So you're really getting some of your own money back," Certified Financial Planner, Jennifer Dever said.
Dever said if you’re receiving a huge refund, you’re probably having too much withheld. "Adjust your withholdings so the following tax year, you avoid having paid so much in that you're going to end up getting a refund," Dever said. "We want to avoid making the government an interest-free loan. There's no reason for them to be hanging on to our money when we can have access to it throughout the year."
Dever advises those expecting a refund check to spend it wisely in three ways. The first involves tackling debt.
"Pay off debt starting with high-interest debt first," Dever said.
Secondly, invest in the future. "In a retirement plan, maybe a tax-sheltered plan like an IRA, maybe even a Roth IRA," Dever said.
Third, prepare for inevitable expenses.
"Ask yourself 'do I have my emergency fund established, or are there big purchases coming up that I need to save this money for?'" Dever said.
If those three bases are covered, consider cashing in on personal wants.
"Maybe you want to donate to your favorite charity. Maybe you want to get a business up and running. Maybe there's something you've been wanting for a really long time and you haven't been able to afford it. So now that you have a little bit of a windfall, you use that money to accomplish those things," Dever said.