This post originally appeared on All You.
That fat refund check might seem like found money, but it’s actually your money. By overpaying your tax bill each month, you made an interest-free loan to Uncle Sam, and he’s just now paying it back. This year, allot that extra cash to retirement savings, debt reduction or other expenses with these 10 smart spending tips.
1. Set Up a Rainy-Day Fund
If the financial tsunami washed away your emergency cushion, rebuild it. Aim to sock away three to six months of expenses in an insured money-market account or short-term certificate of deposit. You won’t get much more than 1 percent in interest, but the key is to keep the fund safe and easy to access.
Crunch the numbers: A 2009 Consumer Federation of America study found that people with even $500 stashed away were far less likely to struggle with monthly bills, bounce checks or carry high card balances.
2. Fight Credit Card Debt
You probably can imagine lots of fun ways to spend your refund, but paying down your credit card balance is a smart move. If you have multiple cards, first tackle the debt on the card with the highest rate, or pay off one card completely if you can, and bank the satisfaction.
Crunch the numbers: If you make 4 percent minimum payments on a $3,000 balance at 18 percent interest, it takes nine-plus years to pay it off—and costs $1,600 in interest. By making 10 percent payments, you erase the debt in 11 months while paying $275 in interest.
3. Refinance Your Home
With low mortgage rates, this gift keeps on giving in the form of lower monthly mortgage payments. If you plan to be in your home for at least three years and will save at least 1 percentage point on your rate, then ante up your refund to pay the closing costs and start saving on your monthly tab.
Crunch the numbers: The handy guide available at smartmoney.com can help you figure out when it’s worth refinancing. The guide also offers tips for lowering your closing costs.
4. Pad Your Nest Egg
Nearly 55 percent of Americans have less than $25,000 in savings. Your future self will thank you for preparing for retirement. Stash your refund in a traditional IRA or another tax-deferred account, like a 401(k) or 403(b), and you’ll also pick up a tax deduction on next year’s returns.
Crunch the numbers: If you put your $2,000 refund into a retirement fund that earns 8 percent annually, it will be worth more than $20,000 in 30 years. Visit moneychimp.com to discover how much your refund can grow over time.
5. Go Green to Save
By investing in new thermal windows, insulation or more efficient heaters, you will save a bundle on your energy bill. In fact, replacing old windows can save up to $465 per year in energy costs alone. And if you invest in major energy-saving systems, like solar panels or a geothermal heat pump, you can get 30 percent of the price back on next year’s taxes.
Crunch the numbers: Use the calculator at ehow.com to learn how much replacing one, two or all of your windows will save you over time. At energystar.gov, find even more incentives for energy-saving items.
6. Put It Away for College
Place your refund in a qualified state-run 529 plan, watch it grow and withdraw the money tax-free for tuition and supplies. Not all plans are created equal, and some states reward residents with a tax deduction for investing at home, so be sure to compare 529 plans at savingforcollege.com, where you can find out how your deposits will add up down the road.
Are you a latte lover? A cappuccino maker might sound decadent, but if you cut out your runs to Starbucks, it’s a net bonus to your income. Dying for window treatments? Pick up thermal ones at end-of-season sales and your reduced heating costs next winter will more than make up for the up-front investment. You also might want to reserve $100 for a gift that pays back in emotional dividends, such as a nice dinner out with your spouse.
8. Invest in Your Health
Getting fit now can save you a fortune in medical bills later. Use your refund to join a gym—most give you a discount for paying up front. If you don’t have health insurance, sign up for a high-deductible plan and start a health savings account with your refund. You’ll be prepared if an emergency arises.
Crunch the numbers: A health savings account combines a high-deductible health insurance plan (at least a $2,400 deductible) with a tax-favored savings account. Use the calculators at hsacenter.com to figure out if an HSA could save you money over the cost of a traditional co-pay policy.
9. Take a Class
Extra training might help you score a higher-paying gig. Plus, with Hope and Lifetime Learning credits, get up to 20 percent of the cost of the class back at tax time if you make less than $60,000 (or $120,000 for joint filers).
Crunch the numbers: A medical assistant with an EMT certification earns about $10,000 more than one who has only a CPR certificate. If the CPR assistant makes $35,000 and takes a $1,000 EMT class, she would get $200 off her taxes next year. If the additional training boosted her salary by only 3 percent, her raise would more than pay for the class, and she would increase her future earning potential.
10. Give It Away
Americans have been donating less, and charities are feeling the pain. Helping out your favorite cause not only makes you feel good, you get a tax deduction to boot.
Crunch the numbers: If your tax rate is 15 percent, donating $2,000 costs just $1,700, since you get $300 back next year. Use the calculator at charitynavigator.org to figure out how much you will save.