If you're slated to receive a tax refund in 2014, you may wonder how to best use the money. Here are five strategies to consider for your tax refund dollars.
1. Spend a small percentage
Take 10% of your tax refund and spend it on something for yourself. Doing so will help you stick to your plans for the rest of the money. If you're too strict with yourself, you might be more likely to fall off the financial wagon. The average tax refund for 2013 was roughly $3,000, according to the IRS. If you receive the average $3,000 tax refund, spend $300 of it but use the remaining $2,700 wisely.
2. Pay off high-interest debt
Put your tax refund to excellent use by paying off any outstanding credit-card debt. If paying it all off isn't feasible, then consolidate your debt. Several credit cards offer 0% on balance transfers. For instance, Citigroup's (NYSE: C) Citi Simplicity card and JPMorgan Chase's (NYSE: JPM) Slate card offer 0% on balance transfers for 18 and 15 months, respectively, and no annual fees. If you qualify, transfer your balance as soon as possible. Then immediately set up and stick with a monthly payment plan. Discipline yourself to pay off the entire balance before the 0% time clock is up.
3. Build your savings account
Bolster your emergency savings so that you have at least three months' worth of living expenses socked away. Money market or savings accounts will provide you with the best rates. For example, American Express' (NYSE: AXP) high-yield savings account pays 0.85%, and Capital One Financial's (NYSE: COF) Capital One 360 offers a 0.75% annual percentage yield. Both accounts boast no minimum balances and no fees.
4. Fund a Roth IRA for 2014
Get a jump on this year's Roth IRA contribution. Sure, you have until April 15, 2015 to make your contribution for the 2014 tax year. But don't wait. The earlier you fund your Roth IRA, the more months of tax-free growth you'll accrue. That can amount to a significant sum of money -- and considerably impact your retirement savings over the long term. Find an online broker here.
5. Revisit your tax withholdings
Assess why you're getting a tax refund. When you receive a refund, it's only because you've overpaid to Uncle Sam throughout the year. He has essentially used your money all year long. Don't stand for that another year. Either discuss your situation with a tax professional or tackle the issue yourself.
Put your tax refund in 2014 to good use by employing these strategies. Making small steps toward improving your financial situation today can make a big difference later in life.
Nicole Seghetti owns shares of Citigroup and JPMorgan Chase. Follow her on Twitter @NicoleSeghetti. The Motley Fool recommends American Express. The Motley Fool owns shares of Capital One Financial, Citigroup, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.