Making the most of your tax refund
While some 75 percent of taxpayers received refunds averaging $2,700 in 2012, avoid the temptation to see that as a retailing windfall, said Laura Connerly, assistant professor for the University of Arkansas System Division of Agriculture.
"Think before you spend," she said, adding that the money, used wisely, can help build wealth.
Connerly offers these tips for making best use of that tax refund:
Pay down debt. "Increase your financial security by decreasing your debt," she said. "If you have outstanding debt--especially if it's credit card debt--consider using at least part of your tax refund to reduce the balance."
Build emergency savings. "Most experts recommend that consumers keep enough money in an emergency savings fund to cover at least three to six months of expenses," Connerly said. "A tax refund can be a good start or a great boost to your emergency fund.
Save for retirement. "Use your tax refund to open or add to an IRA," she said. "Individual Retirement Accounts are similar to a savings account but they come with some tax breaks as you save for retirement. You can open an IRA at most financial institutions."
Buy savings bonds. "You can use part or all of your tax refund to purchase Series I Savings Bonds from the U.S. Department of the Treasury," Connerly said. "I Bonds are a low-risk investment. Use IRS Form 8888 to buy bonds. You can learn more about Treasury Bonds or purchase online at www.treasurydirect.gov."
Use direct deposit. "If you don't see it, you're less likely to spend it," she said. "Use IRS Form 8888 to deposit your tax refund directly into your savings account. You can split your refund and deposit in up to three different accounts. You can also use Form 8888 to split your refund between purchasing savings bonds and depositing into savings accounts."