Tax Refund: 5 Good vs. Better Ways to Use It

By on March 26, 2014


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According to a recent survey by TD Ameritrade, most American taxpayers plan to save or invest their refunds (61%) while others intend to pay down debt (21%) or spend money on expenses (18%). This data indicates most of us are pretty practical with our refunds, and yet some uses are better than others. Consider these good and better ideas for spending your tax refund this year.

Good Idea: Deposit into Savings Account
Better Idea: Invest It
Depositing your refund is a good idea, right? In theory, yes, but when you fund your low-interest savings account, you’re not making any money off it. Investing your refund into a 401k or Roth IRA will help you build wealth over time. If you have kids, you might also consider creating a 529 Savings Plan to assist in college costs down the road. Details and options for these accounts vary by state, so learn more about your specific options at SavingforCollege.com.

Good Idea: Make Extra Mortgage or Student Loan Payment
Better Idea: Pay Down Credit Card Debt
Big debts like mortgages and student loans represent hefty monthly payments, so paying them down faster is an understandable impulse. However, these loans typically have a relatively low interest rate. Credit cards have higher interest rates and you’ll save more money in the long run if you use your refund to pay down plastic debt.

Good Idea: Pay Cash for Replacement Appliance
Better Idea: Use Discount Gift Cards
Refund are great for replacing or repairing household items like appliances. While paying cash for these hefty expenses may seem like a good idea, stretching your dollars further by using discount gift cards is a better one! Websites like GiftCardGranny.com help you find the best deal on cards at less than face value to stores like Lowe’s, Sears, Home Depot and more. With discounts of up to 10 percent, you may even have some refund money leftover to apply toward a savings goal!

Good Idea: Cash It
Better Idea: Create an Emergency Fund
Studies show we have a harder time parting with cash than swiping plastic. Cashing your refund and treating yourself responsibly over time is tempting, but ultimately you’ll piddle it away on silly things like lattes and lunches. Instead, create an emergency fund with your refund to give yourself peace of mind when the unexpected occurs. Consider setting up a high-interest online savings account to build your fund even faster. Read this article to learn more about these accounts and to compare recommendations.

Good Idea: Week-long Vacation
Better Idea: Weekend Getaway
With the average American expecting over $3,000 back from the IRS in 2014, you might be itching for a beachfront view and umbrella drink. Since you can pay for the whole thing with your refund, it’s a smart move, right? Wrong. Blowing your entire refund on one vacation will leave you feeling strapped later on. Instead, research nearby areas to relax for the weekend and use some of your refund to finance the trip (while investing or otherwise saving the rest of it).

 

Andrea Woroch is a nationally-recognized consumer and money-saving expert who helps consumers live on less without radically changing their lifestyles. From smart spending tips to personal finance advice, Andrea transforms everyday consumers into savvy shoppers. She has been featured among top news outlets such as Good Morning America, NBC’s Today, MSNBC, New York Times, Kiplinger Personal Finance, CNNMoney and many more. You can follow her on Twitter for daily savings advice and tips.