Personal Finance: Now, What Are You Going To Do With That Refund?

Hey, tax season is in full swing and getting a refund is exciting.  Many treat it as though they've won some sort of prize and then go out and spend it on a big vacation, a new entertainment system, clothes, purses, shoes, and on and on... but are those really their best options? Tax refunds are somewhat unplanned amounts of cash coming back into your bank account, and are really unnecessary, in my opinion, because it's already your own moneythat you just receive back as a refund, without any interest, of course.  I know you would be all over the bank if you left your money in there all year and at the end of the year you made a withdrawal and received no interest on your savings.  Well, that's the way it is with your refund.  But, with a little knowledge, you could do better.  You can control your own moneys during the year; making investments for the future or paying down debt are great ways to better your financial future. Here is what you should do with your tax refund....big or small.

First, take 10%, and buy whatever you want. Splurge. You deserve it. Not only will it make you feel good, but it will keep you in good spirits and focused with what you're going to do with the rest.
Take the remaining 90% and gleefully stuff it into one or more of these categories, preferably in the following order.

1. Reduce Debt  - If you have debt, any amount, pay it off as quickly as you can. Make a dent in it if it's a large debt and pay the smallest amount off first, for it's a huge motivational boost when you see the interest saved. The interest alone is worth the reason to kill off those debts as soon as possible.
2. Start An Emergency Fund - If you don’t have one, this is the absolute perfect way to jump start an emergency fund. It provides peace of mind to know that you have money in case of any unexpected expenses which may require additional cash such as car or home repairs, significant medical or something beyond your dreams.  It keeps you from relying of credit cards or loans which would put you back in the rut of paying interest all over again.
3. Savings - You are saving for something, right? Maybe a new car, a vacation, a house, or saving simply for the sake of saving. You can use your tax refund to push you that much closer to achieving your savings goal. 
4. Retirement Fund- Employer-based, 401K retirement accounts, IRAs and ROTH IRAs are savings accounts for retirement. If you're already on the ball with this, then great, but you may want to use your tax refund to begin the process of maxing out your retirement contributions in these accounts or talk to a financial planner about making wise money-making investments. No matter how young or how old you are, there is no harm in putting aside money for the day when you won’t be working anymore.
5. Vacation - If, and only if, you already have a family savings account, a huge emergency fund, no debt, and will max out your retirement savings for the year, then please, go take a vacation. You're obviously working hard enough already, so take some vacation time and spend your tax refund on a great experience ... far away or just around town.

Well, these are the best ways to spend any refund, but ultimately, the best way to spend your refund is to never receive one in the first place. You should just make an adjustment to your federal tax withholding to ensure that you only withhold what you owe, and by making adjustments along the way, if necessary, will result in you being in line with your tax liability... a little over or a little under, but you must do away with receiving large refunds during tax season and make educated investments to support you and your family. With the amount that you have been over withholding, see a reputable financial planner in your area for some sound and dependable advice... it's your money all year long, not just during tax season, so make it work for you, all year long.  Now, how are you going to spend your tax refund?