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How to Build an Emergency Fund with Your Tax Refund
For those who receive a tax refund, it could be the largest payday of the year. However tempting it is to spend that money immediately on a big-ticket purchase, it’s wise for those who receive a substantial refund to put that money toward an emergency fund.

Although GOBankingRates recently found that 69 percent of those who receive a tax refund save at least some portion of their return, allocating that money toward an emergency fund could save you from being in a financial bind should something unexpected occur.

How Large Should an Emergency Fund Be?

Many expenses might seem to take precedence over establishing an emergency fund. After all, you need to pay your bills to maintain a strong credit history; however, in the event of an emergency, such as illness or sudden unemployment, having an emergency fund established could be your one financial lifeline.

An emergency fund should be used strictly to cover emergency situations, rather than a means of financing indulgences or monthly expenses. It’s recommended that your emergency fund be equivalent to six months’ pay.

The IRS reported that the average tax refund this year has been $3,034 — up 3 percent from 2013. The mean annual salary in the United States was $46,440 in 2013 — meaning, ideally, the average American’s emergency fund savings should be about $23,220.

A tax refund could easily jump start the creation of an emergency fund; $3,034 would already be 13 percent of the way toward that goal.
The Best Way to Save Your Emergency Fund

To make your investment grow for you, seek a high-interest savings or money market account to store your emergency fund, rather than placing your savings in a certificate of deposit, where it’s inaccessible for a set amount of time.


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