GOLDEN VALLEY, Minn. -- If you are getting a tax refund, it's easy to dream about how you will spend the money. According to the IRS, the average individual income tax refund in fiscal year 2016 was $2,795.

"So pretty significant tax refund for most Americans and the question is, 'What should you use it for?'" said David Carlson, founder of the personal finance blog "Young Adult Money" and author of "Hustle Away Debt."

Emergency Fund

Carlson recommends first evaluating your finances–starting with an emergency fund. From car troubles to a sick pet, an emergency fund will help you avoid having to resort to using a credit card. A 2017 GOBankingRates survey found that 57 percent of respondents had less than $1,000 in a savings account. However, it was an improvement from 2016's 69 percent. The new survey found that 39 percent of Americans had no savings at all.

"For an emergency fund, you're going to want to save between 3-6 months of expenses. Sometimes that can be discouraging because it's such a big amount for somebody who either has zero or maybe a few hundred dollars. So really just starting is key and building your way up to that amount over time," Carlson said.


If you have already built up your emergency fund, Carlson recommends tackling any high-interest debt, like a credit card. "Try to set aside some of that tax refund or use all of it to pay down that high-interest debt. Low-interest debt is less important," Carlson said.

Investing and Saving

Carlson also recommends putting your tax refund towards your retirement account or specific savings. "So let's say you have an upcoming wedding or you're planning on buying another vehicle or even a house, setting aside that refund is a nice little one-time cash infusion into those savings funds," Carlson said.

David Carlson, founder of the personal finance blog "Young Adult Money" and author of "Hustle Away Debt."
David Carlson, founder of the personal finance blog "Young Adult Money" and author of "Hustle Away Debt."
Chad Nelson

Looking forward to next year

"People, and it's not their fault, they only think of taxes around tax time. Sometimes they realize their mistakes, maybe they owe more money to the IRS than they thought they would. Maybe they thought they were going to get a refund and they didn't or their refund is really small," Carlson said.

If you did not get a refund and want one next year or prefer a bigger refund, claim fewer allowances. For example, claiming 0 instead of 1 on your paycheck causes your employer to withhold more. You can also choose for your employer to withhold even more of your paycheck, like an extra $50 each paycheck. Review your paycheck throughout the year and make adjustments, if needed.

For those who are freelance or self-employed, you'll want to set aside a little bit extra. Carlson has more information on how you can calculate quarterly estimated taxes at Young Adult Money.

Moves that will result in lower taxable income include contributing to a 401(k) or a 403(b), a traditional IRA, or a Health Savings Account.

"An HSA... whatever you put in there, you never lose," Carlson said. "So you put it in tax free, take it out tax free. Stays with you. Another big perk to it, once you get above like a $2,000 balance, typically around that level you can invest it. Those investment gains aren't going to be taxed either if you withdraw for a qualified medical expense."

The deadline to submit 2017 tax returns is Tuesday, April 17.