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The 3 Smartest Things to Do With Your Tax Refund

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Getting money back from the Internal Revenue Service this year? Before you rush out to spend it all, consider these three ways to make the most out of your refund. (Haven't started your taxes? Why not do them this weekend?)

1. Kill Your Credit Card Debt

Every day you hold on to debt, it costs you money. The longer you have a balance on a credit card or high-interest loan, the more yo' have to pay in the long run. Ready for a scary example? If you make the 3 percent minimum monthly payment a $5,000 balance on a credit card with an 18.9 percent interest rate, your payments will total $10,188 -- and it will take you more than 17 years to pay the balance in full. A calculator from Bankrate.com will help figure out the interest you'll pay on your debt and how a little extra each month could make your debt disappear years faster. So put your tax refund toward knocking out your debt with the highest interest rate.

2. Boost Your Emergency Fund


If you don't have an emergency fund yet, use your tax refund to establish one. Emergency funds will provide you with the cash you need to cover unforeseen costs that might otherwise wipe out your monthly budget and even eat into savings that you had earmarked for other purposes. Need some motivation to keep contributing to your emergency fund? Join the Rainy Day Challenge and let a little gamification help you stay on track.

Unexpected expenses happen to everyone, so it's a great idea to be prepared. (Wondering what those unexpected expenses look like? Check out My $1,000 Day.) The rule of thumb is to have about three to six months' worth of net pay set aside in your emergency fund. If you're not there yet, use your tax refund to give your savings account the boost it needs.

3. Invest for the Retirement


Make your tax refund work really hard for you by investing in your future with the power of compound growth. If you contribute $2,000 of your tax refund into a Roth Individual Retirement Account and earn an average of 8 percent over the next 30 years, it would be worth more than $20,000. Plus, you might qualify for the saver's tax credit next year, so a contribution to your retirement account could help you get an even bigger tax refund next year.

If you have children, you can add your refund to a 529 plan to help pay for future college education expenses.

Whatever big financial goal you have, you can use your tax refund to help you achieve your goal faster. These three smart uses of your tax refund are great for building your financial security and well-being.

However, once you've done the responsible thing with most of your IRS windfall, splurge with 5 percent to 10 percent of it. Making smart financial decisions is important, but so is enjoying just a little extra money when you have it.

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How to Write Off Sales Taxes

The Internal Revenue Service (IRS) permits you to write off either your state and local income tax or sales taxes when itemizing your deductions. People who live in a state that does not impose income taxes often benefit most from this deduction. However, you might also be better off deducting sales taxes instead of income taxes if you make large purchases during the year and your total sales tax payments exceed those for state income tax. You can use either the actual sales taxes you paid or the IRS optional sales tax tables.

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13 Comments

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Jan & Pat

I would like to unsubscribe --- please take me off your email list..........

April 04 2014 at 3:29 PM Report abuse rate up rate down Reply
JOHNNY

I can spend it on anything I please. I really get annoyed at these articles telling me what to do. eat this,don't eat that, what kind of car to buy. How about just let me decide what I want .

March 31 2014 at 2:48 PM Report abuse +1 rate up rate down Reply
1 reply to JOHNNY's comment
davidl7082

What they really want you to do is to hand the refund over to Wall Street so they can help you spend the money.

April 01 2014 at 10:50 AM Report abuse rate up rate down Reply
danceshorses

Use your refund to buy protection against being a victim of serious crime. Whether a revolver or a semi auto either one is better than none at all. Rember that when danger is at your door, the police are just minutes away. It is up to you to protect yourself till the cops arrive.

March 31 2014 at 11:53 AM Report abuse rate up rate down Reply
savannahswithgod

What do you mean smart I aint got no choice. Lawyers after the old credit card bought up by collection agencies. I think this is the 4th time so have to get that taken care of now. So the 700 heading for that. Did make a mistake on the computing to the IRS so will have a 100 left over for meself. Maybe a steak from the Cracker Barrel.

March 30 2014 at 3:24 PM Report abuse -1 rate up rate down Reply
foxyconserv

Things not to do with your tax refund: Run out and buy a big flat screen TV or new chrome rims for the minivan with blacked out windows.

You're welcome.

March 30 2014 at 11:03 AM Report abuse rate up rate down Reply
worried man

The next 30 years ???????????? Holy crap...in 30 years we will be lucky to be here let alone the planet

March 30 2014 at 12:45 AM Report abuse +6 rate up rate down Reply
worried man

I am getting a hooker with my refund however I will check her green card first ! USA made hookers only !!

March 30 2014 at 12:39 AM Report abuse +5 rate up rate down Reply
bdgrizcp

Boring. Anyone can do those things and be boring. Yawn. They tell us these same things every year and they have never been anything but boring. I even have done these things and found out just how boring it was. Yawn. The reason many of us get a refund is because we like a big paycheck and never get one. It's fun money (and if your idea of fun money involves Home Depot, you, too are boring) and we should do something--anything--we want to do but never have the money for. One year, long ago, I bought a large amount of high grade weed. See? Not boring. Another time we took a short cruise on a tall ship. Notice that it was a tall ship, not a floating high rise with a few thousand screaming kids. Be creative for once. Do something you can beat up the cubicle rats with. Have some fun.

March 29 2014 at 6:55 PM Report abuse +2 rate up rate down Reply
jrb359

Government says there is no inflation but if you buy food things are getting more expensive and gas doesn't seem to be getting any cheaper. With all the lies coming out of the WH, I don't believe anything they say!

March 29 2014 at 5:48 PM Report abuse -4 rate up rate down Reply
1 reply to jrb359's comment
jrb359

Looks like I offended someone who is willing to give up my freedoms so as they can get a government check. Either that or they are Obama worshipers who overlook every lie he has told!

March 30 2014 at 5:32 PM Report abuse +1 rate up rate down Reply
alol9261

where in the heck do you get an 8% interest rate on your roth, nobody is paying that! Try 1.2% Your projections are misleading at best!!!

March 29 2014 at 2:25 PM Report abuse +7 rate up rate down Reply
1 reply to alol9261's comment
ed

most good mutual funds are over 8% , i 've made more then 8% a year on undividual stocks the last few years altho i wouldn't recommend that to most folks

March 29 2014 at 6:23 PM Report abuse rate up rate down Reply
1 reply to ed's comment
thomashollman19

or your buddy BERNIE MADOFF

March 29 2014 at 9:53 PM Report abuse +9 rate up rate down