This month, millions of Americans will be getting tax refunds back from the IRS. Some will receive a few hundred dollars while others may get several thousand. For many taxpayers, their refund is the largest lump sum they will receive all year. With a big sum of money that is outside your regular monthly income, the temptation is to spend it on something fun like a vacation or a new 60 inch flat screen TV.

This year, instead of blowing your refund on something frivolous, we recommend using it to better your financial circumstances. Here are three ways to make wise use of your tax refund:

Start/Increase your Emergency Fund: You do have an emergency fund, right? If you are not familiar with the concept, this is a fund that is in a savings account that is separate from all your other accounts. The money in the account is for emergencies only- such as a major car repair, loss of employment, things of that nature. If you do not have an emergency fund, now is the perfect time to set one up. Start by saving $1000 as quickly as possible so you have something put away. Then save as much as you can monthly until you have at least six months of income in the account. This is the most important first step to getting your financial house in order, as it ensures that you’re prepared for the inevitable curve balls life throws at you!

Reduce your Debt: The average American has close to $10,000 in credit card balances. If you have outstanding balances on your credit cards, it will take years to pay them off just paying the monthly minimums. The lump sum you receive for your tax refund gives you an ideal opportunity to pay down (or even pay off) your credit card balances. This alone will put you in a better financial position by reducing your monthly obligations and removing the burden of high interest debt.

Fund your IRA: If you have your emergency fund and debts under control, another great place to invest your tax refund is in your retirement account. You are not getting any younger, and we all know that Social Security alone will not provide us a comfortable retirement. So if you are not already fully funding your IRA, now is the perfect opportunity to do so. As an added benefit, most IRA contributions are pre-tax; meaning anything you contribute to your IRA will reduce your tax liability for next year.

Are you receiving the maximum refund you are entitled to? If you are not sure, it is important to speak with your local tax professional as soon as possible. Having your return reviewed by a tax accountant could pay large dividends in the form of a higher refund. Even if you have already filed, it may be worthwhile to have your return looked at and amended if it is financially beneficial to do so.