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7 smart ways to spend your tax refund

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So you’ve finally got your tax refund in hand, but now what should you do with it? Check out these great ideas to make the most of your tax refund and help you get ahead financially:

1. Bulk up your emergency fund. Living paycheck to paycheck may have been fine when employment was low and getting credit was easy, but these days, building a financial emergency fund is critical.

“A three-month emergency reserve of all your fixed expenses — mortgage, utilities, food — is ideal,” says Jessica Cecere, president of Consumer Credit Counseling Service of Palm Beach County and Treasure Coast in West Palm Beach, Fla. “But even if you only put $1,000 into a savings account, you’ll be better off than a lot of people.”

2. Lighten your debt load. The minimum payment you make on your credit card may seem like no big deal. But over time, the money you spend financing your debt, especially if you have an interest rate of 15 percent or higher, can double or even triple the cost of every item you buy on plastic.

“Your tax refund is an opportunity to make headway on your credit card debt,” says Jerry Love, president and chief executive of Davis Kinard & Co., an accounting and audit firm in Abilene, Texas. “Do you really want to be paying for yesterday’s lunch for the next 18 years?”

3. Invest in your career. Getting a big promotion or shifting to a higher-paying career often requires developing new skills. Spend money on continuing education courses, a weekend conference or an online class to learn a new skill.

“Many continuing education courses start at just a couple of hundred dollars,” says Steven Katz, spokesman for Chicago-based TransUnion’s financial management Web site zendough.com. “Invest in your education and you’ll have more earning power in the future.”

4. Get a home energy audit. Home energy audits can cost anywhere from $25 to several hundred dollars, but the information you get can help you save far more over the long run, says Kip Kiebke, chief executive officer of New Financial You, a credit counseling service in Hartford, Conn. The audit can show you where to seal up leaks and add insulation.

“With the energy saving measures, utility expenses can be reduced for years, thus saving the homeowner money,” Kiebke says.

5. Add to your retirement account. You have plenty of options for stashing money away for your retirement years, but in general you’ll want to first max out any account that includes an employer match. The free money is just one of the benefits, says Cecere. “Most of the time, that money will come straight from your paycheck so you won’t even see it,” she says.

f your employer doesn’t offer a retirement plan or you’ve already put in enough to meet the matching requirement, consider starting an IRA. You’ll have more control over your investment options than with a tradition 401(k), and it’s an easy way to turbocharge your savings, says Cecere.

“The sooner you start saving, the more time your money has to grow,” she says.

6. Tackle maintenance projects. Maybe you never had the money to replace that old furnace, patch that leaky roof or replace the worn tires on your car. Use your refund to complete maintenance projects that can cost you even more if you wait.

“If you have an older home, you may also be able to take advantage of the energy tax credit,” says Love. Buying energy efficient furnaces and air conditioners and replacing roofs won’t just prevent problems, they’ll improve your home’s energy efficiency and earn a federal tax credit on next year’s return.

7. Buy life insurance. If you have a spouse or children who depend on your salary, you should have ample life insurance. To get the most for your money, term insurance is probably your best bet, says Bob Petrocelli, an agent at New York Life Insurance Co. in New York.

“For a few hundred dollars a year, a 35-year-old male can create $500,000 or more of insurance protection,” Petrocelli says. “For very little money, you can create a death benefit that’s pretty significant.”

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