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5 smart ways to spend tax return

Posted at 7:24 PM, May 07, 2018
and last updated 2018-05-07 19:24:52-04

(CNN) – Refund season is upon us!

Last year, nearly eight out of 10 people received a tax refund worth an average of $2,895, according to the IRS.  

If that trend holds up this year, many taxpayers will once again get a nice check from Uncle Sam.

Financial experts have some advice on how to spend your tax refund:

1: Start an emergency fund

Alok Deshpande, the CEO of SmartPath Financial, said you should be prepared for unexpected expenses.

"Ultimately, you're trying to get to 3 to 6 months of an emergency fund. I'd start with one month. Maybe it's $2,000 – you’re setting that in a savings account," Deshpande said.

2: Pay off your debt

Whatever you own money on, work hard to get rid of it and avoid paying double-digit interest rates.

"You're going to take the highest interest rate first and work that piece of debt off first. And that's going to help you save some money," Deshpande said.  

3: Upgrade your house

It’s likely your most valuable asset, so pour money into projects that will raise equity.

"The kitchen and bathrooms is where to put the money in terms of homes," Deshpande said.  

4: Put the money toward your individual retirement account

If you don’t have one, don’t put it off.

"Whether that's Roth or traditional, don't get too caught up there. Just get it started." Deshpande said. "If you start investing sooner, you get the opportunity for your money to compound."

5: Have fun

After all, you can’t spell “refund” without “fun.”

"So, let's say you've paid off a credit card, or student loans, whatever your next goal is – that 20 percent is there for you to spend as a reward for finishing that goal," Deshpande said.

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