Yay, you’re getting a tax refund! What’s the smartest way to use it?

Found money may be the best money, but being strategic about how you spend your tax refund is even better.

Receiving a tax refund can feel like a windfall intended to put the “disposable” in disposable income. However, just spending that money without seriously thinking about it first can be a missed opportunity to increase your financial stability. 

Also, contrary to popular belief, getting a tax refund should not be the goal. When you get a refund, that means you gave Uncle Sam a yearlong loan without him paying you any interest. So before you run out and spend this “found” money, think about how this money can help you in the long run. 

If you’re expecting a refund this year, the time to start strategizing is now. For online filers, the IRS issues most refunds in less than 21 calendar days; mailed returns may take four weeks or more to process. If you don’t immediately need your refund money for paying off a utility bill or taking care of car repairs, here are five smart ways to use that money that will benefit you far more than a new dress or electronic upgrade — and put you on the road to future financial stability.

Start an emergency fund 

In any savings plan, the first step is setting up an emergency fund, and if you don’t have one, this money is a great way to start. Typically, you need at least six months of living expenses — and I always advise at least nine — in case of an emergency or job loss. In this economy, starting or increasing an existing emergency fund can give you peace of mind should you experience a sudden reversal of fortune. 

Even having $500 on reserve can help you solve a lot of emergencies — think about the expense of replacing a flat tire or a broken cellphone — so at a minimum, aim for that. Don’t think that you need thousands of dollars to get started building a financial safety net. 

Pay down high-interest credit card debt 

As we’ve told you before, in this high-interest-rate environment, continuing to carry around high-interest debt is costing you even more money, and the longer you take to pay it off, the more it grows. 

Paying off credit card debt is the best move you can make with your tax refund. Think about all of the interest payments you will save by paying that credit card off now instead of making the minimum monthly payment for months or even years.

Open a Roth IRA

Starting a Roth IRA right now is a smart move. Increasing how much you are saving toward retirement will only help you be better prepared down the road. Even if it’s still decades away, retirement is never as far off as you might think — and you’re going to want to be comfortable when it arrives.

Start a business 

There is nothing like an investment in yourself, and a side hustle is always a good idea. Setting yourself up to bring in more income is just good financial sense. That is money that can go to paying off debt or increasing savings, and if it is something that you really enjoy, it could grow to be your primary source of income.

Invest in your home

You may not be able to update your entire home with your tax refund, but you can get smaller projects finished and crossed off your home improvement list. Also, doing things like replacing old appliances now instead of when they break can save you money and headaches in the future. 

You may even be able to add to your curb appeal by investing in lawn care or spruce up your home by painting a couple of rooms, making you feel more comfortable in your space. 

So if you’re getting a tax refund this year, that’s great — but the best thing you can do is invest that “found” money into your own growth and long-term stability. And whenever a windfall appears, it’s always smart to have a plan in place for how you will spend your money. If you plan wisely, you’ll still be enjoying the benefits long after the money is gone.

Jennifer Streaks is Senior Personal Finance Reporter and spokesperson at Business Insider and a financial contributor at theGrio. A nationally recognized expert on money and affordable lifestyle living, Jennifer is an established financial columnist who has been featured on CNBC, Forbes, ABC, MSNBC, CBS, and more.

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