Save That Refund

What are you going to do with your tax refund? Before you start planning trips to tropical islands or buying a shiny new car, consider what financial situations have been pressing on you in the past year.

Do you have credit card debt? As fees and interest pile up, do you always pay the minimum payment? Consider using part or all of your tax refund to pay down your credit card account. You will save money in the long run, and have that payment you normally make to the credit card to use for other expenses, or for saving.

Speaking of saving, do you save enough? Everyone needs at least three months worth of expenses set aside in savings in case of emergency. Your emergency fund should cover everything from rent to dry cleaning bills, any regular expense, for at least three months in case of illness or the loss of a job. Consider using your tax refund to bolster your savings account, whether it's for your emergency fund, college tuition or retirement.

Is it wrong to have a little fun with your refund? Not necessarily, but make sure that the bulk of it goes to accomplish something useful that will give you more financial peace of mind throughout the coming year. Then buy yourself some nice treat on your wish list.

The best advice? If you're getting a large refund, it is time to review your tax situation and witholding. Having the IRS hold your money for you is not the best solution. Better to put that money in an savings account where it will accrue interest or invest it in your 401K or IRA.