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Use Your Tax Refund Wisely

4/24/2014, 2:49 p.m.
If you are one of the millions of Americans receiving a refund this year, following are several ways to put ...

By Tina Robinson

Senior Vice President and Regional Manager

Union Bank, N.A.

Nationwide -- If you are one of the millions of Americans receiving a refund this year, following are several ways to put your refund to work.

Shore up your emergency fund-- Experts recommend that you set aside at least three months worth of expenses in savings in case of an emergency or job loss. Consider getting a jump on starting or bolstering those savings with your tax return. According to the Consumer Federation of America, a non-profit research and advocacy group, people with even $500 in savings were far less likely to struggle with monthly bills, bounce checks or carry high credit card balances.

Pay down debt-- Eliminating debt is one of the fastest ways to free up money for savings and investments. Credit card bills, student loans and other debt can be a burden on a budget, and the balances accumulate interest, adding to your debt. Use your tax return to pay off high-interest debt to help free your budget for other financial goals.

Take a class-- Put your refund toward paying for continuing education classes, online courses or enrolling in a community college program to help you sharpen skills, learn a new language or enhance general knowledge. Furthering your education may also help your career and increase your earning power.

Add to your retirement account-- According to a 2014 survey by the Employee Benefit Research Institute, only 57 percent of Early Baby Boomers, 59 percent of Late Boomers and fewer than 58 percent of Gen Xers are projected to have enough money saved for retirement. Consider investing your refund in a traditional IRA or another tax-deferred account, like a 401(k) and explore any tax benefits with a trusted financial advisor. Or contribute to a 529 college savings account, and when you are ready to enroll, you’ll be able to use the money tax-free for college bills, and perhaps get a state income-tax deduction for your contribution.

Conquer home improvement projects-- Look into improvement projects that add value to your home or lower your energy consumption. Investing in dual-pane windows or energy efficient appliances may not only help save you money on your energy bill, but you may also receive a tax benefit. Start by contacting your utility company to see if they offer free energy audits or can recommend energy saving projects, or visit energystar.gov to learn about incentives for energy-saving items to make your refund go further.

Pre-pay for your vacation or other upcoming expenses-- If you are planning on taking a vacation, pay for your hotel and other expenses in advance so you aren’t tempted to use a credit card to pay for them. If you book through online travel sites, you may also be able to save even more money. If you anticipate having a lot of expenses around the holidays, set up your budget and start shopping sales and purchase gifts now with cash, or stash it away in a Christmas savings fund.