Picture this: You wake up one morning, and head outside to get the newspaper. Sitting there on the stoop is a bag with your name on it. You open it and find a wad of cash—totaling $3,120! Your mind starts to race as you think about how you’ll spend this money that’s fallen into your lap. Perhaps you’ll pay off debt, pad your 401(k), or beef up that down payment fund for a new home. A blowout vacation sounds nice too—because, hey, how often do you get a windfall like this?
Well, in the coming weeks you could be one of the many Americans receiving what the I.R.S. has quoted as the average tax refund of—you guessed it—$3,120. “We tend to have clear rules for our approach to our paycheck, which arrives on a predictable basis,” says financial psychologist Brad Klontz, Ph.D., coauthor of “Mind Over Money.” “But we treat a sudden cash infusion, like a tax refund, very differently.” No matter how diligent you usually are, once you have that check in hand, your prudent financial habits can easily get tossed out the window.
Luckily, there are some strategies that can help inoculate you against these ill effects. Check out the top four ways Americans plan to use their refunds this year.