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Blow Your Tax Refund

When it comes to a windfall, the best intentions are often forgotten by the time the check is cashed. So what do the 69% of Americans who expect to get a tax refund plan to do with the money?

Let's go shopping!

According to a survey conducted last week for the Cambridge Consumer Credit Index, 68% of consumers plan to spend this year's refund check on everyday purchases or bills, up from 59% last year. About one quarter plan to bank it (23%) or invest it (4%), compared with last year's 27% and 4%, respectively.

We know it's hard to fight temptation, but why not practice just this once when your refund check arrives in the mail. A sudden -- or even expected -- windfall is the perfect opportunity to right any financial wrongs. Why not let the IRS help pay down your credit card bill, add to your retirement kitty, or even fund an emergency savings account? It beats rifling through the couch cushions to come up with your car payment.

If you expect to get cash back on your taxes this year, blow the dough in the right way. Here are a few suggestions:

Splurge (a little): We're not money automatons. Even us Fools need a few props when we're able to stave off human nature and save money that could have bought some really awesome shoes. Take a portion of that tax paycheck (a reasonable portion, that is, in the single-digit percentage range) and buy yourself a little something.

Tackle your credit card tab: Pick the card with the highest interest rate and pay that monster down. (Or, if instant gratification's more your bag, concentrate on the card with the lowest balance.) As long as you're attacking your debts, go ahead and negotiate for a lower interest rate so future payments will make a bigger impact. Use our free GetOut of Debt Guide to plan your offensive.

Supersizeyour savings: Granted, interest rates aren't what they used to be. But you should at least get what you can for socking your money away. Here's a hand to help you figure out what kind of account makes the most sense.

Invest it: For the handful of Americans who invested their refund last year, that $2,136 (last year's average tax refund) could someday be worth $25,754! No, the lottery won't get you there. But 10% average annual returns over 25 years will. It's as easy as 1-2-IRA.

Shop smart: Why not stretch those refund dollars as far as they can go? The folks on the LivingBelow Your Means discussion board have an action-packed FAQ with dollar-stretching ideas.

Now, put that little splurge on the shelf as a reminder of how smartly you spent your 2004 tax refund.


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