What to do with your income tax refund

Updated: September 1, 2015

April 15 has just passed¹. With a little luck, you may have come into some extra money – Uncle Sam or your home state (or both, if you were very fortunate) may have sent you a refund check. What should you do with it?

You just know that a financial planner isn’t going to suggest that you buy a new sports car, or take a lavish vacation. Financial planners are sober-sided, conservative folk (and we at Sensible Financial™ have to be sensible, besides).

You probably know intuitively that it’s easier to save out of a windfall than out of your regular income. Economists have done some work that confirms your intuition. Basically, people who increase their saving out of their income tend to view that as a reduction in their standard of living, and they really resist that. Saving out of “found money” is much easier.

So, save that money. But where? Here are five great ideas, in priority order:

Of course, you may have used up all of these opportunities. You can save the refund anyway. Put it in mutual funds, hold it for a down payment on that second home you’ve been thinking about buying (or as a start on some other dream you have that requires some scratch).

The planner in me can’t resist making two additional points:

So – save that refund – you can even save it all in one place!