3 Reasons This Year's Tax Refund Should Go Straight Into Your Savings Account

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KEY POINTS

  • Saving your tax refund could help you avoid blowing it needlessly.
  • That money might come in handy should your financial situation worsen.

At this point, many tax-filers have already received a refund after submitting a 2022 tax return. If you filed your taxes by the deadline and haven't seen your refund hit your bank account yet, it may be arriving any day now.

As of mid-March, the average tax refund amount issued this season was $2,933. That figure will likely be updated as the IRS continues to process 2022 tax returns.

Now, you may be in line for a larger tax refund than that or a smaller one. But either way, it's a good idea to consider putting your refund directly into your savings account. Here's why.

1. If you don't save your tax refund, you might waste it

When you get a tax refund, it can be very tempting to spend that money on something fun, whether it's electronics, a vacation, or a series of concerts. But if you don't save that money and spend it on a whim, you might end up regretting your decision to spend it, and that's not what you want.

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Of course, if there's a specific item you've been saving to buy for quite some time, then that's a different story. But blowing your refund could mean kicking yourself after the fact.

2. We don't know if a recession will hit later this year

Last year, there were numerous rumblings about a 2023 recession. So far, the economy seems fairly stable, but we don't know if that will change during the latter part of the year. So if you want to protect yourself in the face of a potential economic downturn, then it's a good idea to bank your tax refund so it's there for you if you need it.

In fact, as a general rule, it's a good idea to have an emergency fund at the ready with enough cash to cover at least three full months of essential living expenses. So if you're not at that point, then it definitely pays to save your tax refund -- even if you're not particularly worried about a recession striking soon.

3. Your personal financial situation might take a turn for the worse

Maybe the U.S. economy will hold steady and a recession won't hit this year. But that doesn't mean you won't experience your own personal financial crisis.

You never know if you'll get downsized out of a job. Or maybe your work will be there for you, but you'll need to take a leave of absence to deal with an injury.

Perhaps you're able to continue working, but your home ends up needing extensive repairs this summer that your current savings can't handle. If you put your refund into the bank to pad your savings, it could spell the difference between being able to get through a tough financial situation or potentially landing in debt because of one.

A tax refund isn't free money. Rather, it's money you're entitled to. So your best bet is to treat it as you would your wages and save as much of it as you can, even if that means having to wait to indulge in some of the things you'd like.

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