12 Smart Ways to Use a Tax Refund

Ed note: IRS Commissioner John Koskinen has said that the tax return represents the biggest single financial transaction many Americans will complete in the entire year. We know it’s a big deal, and our H&R Block pros work hard to make sure our clients get back their maximum refund. But what should you do with it? Donna Freedman has 12 ways to make that refund money work harder for you.

Getting a refund this year? Congratulations! Now: Don’t do anything stupid.

It’s so easy to think of your refund as “free” cash. But you worked hard for those dollars last year. Now make them work for you by choosing carefully how to spend (or not spend) that money.

Personal finance expert Liz Weston suggests spending 10% of any windfall on whatever you like. Have fun! But be sure to maximize the impact of the other 90% by using one or more of the dozen tips below.

Each is designed to benefit you for the rest of the year – or, maybe, for the rest of your life. Instead of blowing the refund on nonessentials, why not:

1. Attack consumer debt. The faster you kill it, the less interest you’ll pay.
2. Add to your emergency fund. Don’t have one? Use the refund as seed money.
3. Save for retirement. Compound interest is your friend!
4. Join a warehouse club. Singles and small families might not benefit. But those who love stores like Costco or Sam’s Club tend to love them a lot.
5. Stash some essentials. Paper products, cleaning supplies, toiletries, pet food – watch for sales or buy in bulk at the warehouse club you just joined.
6. Build a pantry. Stock up on staples like dry beans, tuna, canned tomatoes, pasta, sugar, flour, oatmeal and the like. Having plenty to eat means you’re less likely to order takeout.
7. Prepay your car insurance. Rather than paying semi-annually (or, heaven forbid, by the month), see if there’s a discount for a once-a-year payment, like with X insurance agency (find an example).
8. Buy a transit pass. A monthly or even annual pass is generally cheaper – sometimes much cheaper – than a weekly one. Check out the cost of a regular pass with the major transit services in your local area.
9. Improve your home. Low-flow showerheads, compact fluorescent bulbs, faucet aerators, energy-efficient appliances, increased insulation and double-paned windows are some examples of projects that will pay you back.
10. Care for your car. Pick up any or all of the following: filters, a case of oil, wiper blades, windshield fluid and floor mats. Check your tires; if they’re wearing out, watch for sales (although again, the best price might be at the warehouse club).
11. Buy discounted gift cards. The aggregator site GiftCardGranny.com shows you how to save anywhere from 3% to 20% on cards for your favorite stores, restaurants, movie theaters, pet centers and the like. Use them like cash.
12. Take care of yourself. Haven’t been to the dentist or optometrist for a while? Start watching for new-patient specials or online deals (like a Groupon) for eye or dental exams. Sunday coupon sections and coupon mailers (like Val-Pak) are also great places to find great deals.

What do you plan to do with your refund this year?