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It is that time of year again. Tax time. I know you don't want to think about it. At least the part involving the paperwork. But you do want to start planning on how to use your tax refund to save money.
Without a plan in place, it can be easy to give into impulse and spend your refund check on frivolous items and merchandise. Instead of giving in to spending impulses, put some thought into how you will use your refund to give you greater financial stability throughout the year.
Here are some tips you can use that will put your tax refund check to work for you - by saving you money.
Start an Emergency Fund
According to a recent Bankrate survey, over 60% of Americans do not have enough money set aside for even minor emergencies like a visit from the plumber or car repairs. According to Bankrate, only 38% of people said they have enough money to cover a $500 car repair with money from a savings account. More than one-quarter said they would need to borrow money from family or turn to credit cards or short-term, high-interest loans to cover an emergency.
Using a portion of your tax refund to start an emergency fund can save you when disaster strikes and protect you from falling into debt. While some economists say you should have at least 3-6 months' worth of living expenses set aside, you can start an emergency fund from your refund with at least one month's worth of expenses covered.
Pay Off Debt
If you have credit card debt, using your refund to pay it off will pay off better than almost any other option.
Even if you can't pay off all the debt, simply paying down the balance will reduce the interest charges added to your balance each month. Depending on your interest rate, you can save up to 29% per year in interest charges by paying off debt.
If you can't manage to pay off all of the debt, try using the debt snowballing or stacking methods to pay down the balances as fast as possible.
Buy Discounted Gift Cards
Why pay full price when you can save anywhere from 4% to 35% off the things you were going to buy anyway? You can find discounted gift cards for almost any retailer or business from airlines like American Airlines to grocery stores, movie theaters, home improvement stores, and pet supply stores.
Why not use your tax refund to plan ahead and stock up on gift cards to save money throughout the year?
You can buy physical and e-cards through websites like Cardpool.com with savings that depend on the retailer and even stack the gift cards with coupon codes and other savings. You can potentially save yourself hundreds over the course of the year by stocking up on gift cards.
For example, Cardpool sells Exxon Mobil gift cards at a 2.5% discount. The average household spends about $420 per month on gasoline. By using discounted gift cards, you can save $125 over the course of the year.
Want bigger savings? You can save 6.5% on Home Depot gift cards to help you pay for home repairs and improvements.
Replace Outdated Appliances
Why wait for your washing machine, fridge, or water heater to give out, only to struggle to come up with the money to replace it? There's no better time to replace worn-out appliances than when you get your refund check.
If you really want to save money while avoiding a potentially serious problem in the future, consider replacing an old water heater. Your water heater is the second greatest source of energy use in your home and an Energy Star water heater can use 50% less energy than a heater that meets the minimum standards. An Energy Star gas water heater can save you up to $95 a year over a standard heater while an electric water heater can save you about $3,500 over the life of the appliance.
Before replacing outdated appliances, check for rebates and incentives. Some utility companies and municipalities offer cash for turning in working refrigerators and other appliances. Some manufacturers and utilities offer rebates when you buy certain appliances. You can check the Energy Star website and retailers like Home Depot to find rebates.
Make Home Improvements
Even a few hundred dollars can go a long way toward saving you money around the house and improving your life. Here are some ideas for home improvements that can save you money:
- Install low-flow fixtures to reduce water usage by up to 50% and save up to $145 per year, according to Energy Star. You can buy low-flow showerheads for about $20 each and install them yourself.
- Improve home insulation. Insulation reduces cooling and heating costs by up to 20%. Consider upgrading insulation in your attic to keep your home more comfortable.
- Upgrade to compact fluorescent light bulbs. Fluorescent light bulbs will save you about $6 per year compared to incandescent light bulbs. Go through the house and replace any old light bulbs to cut back on energy use. Many utility companies offer rebates on compact fluorescent bulbs!
- Install landscaping. Beautiful landscaping can increase the value of your home and make it easier to sell when the time comes. Strategically placed trees can also shade your home and lower energy costs.
- Seal your duct work. About 20% of the air pushed through a forced-air HVAC system is lost through leaks in the ducts, according to the EPA. Spend a bit of money to have the ducts sealed and lower your heating and cooling costs all year long.
- Install a programmable thermostat. A programmable thermostat will save you about 10% on your cooling and heating costs. Investing in a programmable or smart thermostat can easily pay for itself in months.
- Replace old windows. Upgrading from single-pane windows can save you big. While it will cost between $2,600 and $3,600 to replace 8 windows, you can save up to $465 a year in energy costs. While it will take years to see the payoff, you can reduce the cost of new windows by looking for rebates. The federal government offers a tax credit on new windows through 2016.
While it can be hard to resist the temptation to spend your tax refund on fun things like a new TV, that check has the potential to give you an even bigger payoff if you invest it wisely.