Came across a great article on CNN recently on three ways to spend your tax refund…it’s exactly what I would recommend.  I’ve included it below but here’s the link: “3 ways to use your tax refund External Link

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Question: I’m trying to figure out what to do with my $500 tax refund.
I’m looking to save for the long-term rather than waste it on a TV. Any
suggestions? — Chez, Colorado SpringsAnswer: Ah, tax refund
time. For many people this is the largest single chunk of change
outside their paycheck that they’ll get their hands on all year. You’ve
got half a grand, but many people expect much more. According to a
recent survey by, taxpayers anticipate getting an
average tax refund of $2,800 this tax season from the feds alone.Not
too long ago, before the stock market headed south and the housing
bubble popped, many people saw a check from the IRS as an opportunity
to indulge themselves a bit. Take a little vacation, buy a new
electronic gadget, maybe splurge on a dinner at that fancy restaurant
with the big prices and tiny entrees.And even if someone
expressed a desire to invest his tax lucre back then, chances are they
wanted to do something adventurous with it, like put it into a house or
condo with the idea of flipping it for a fast profit.My, how
times have changed. Even though the stock market has climbed by more
than 50% over the past 12 months, the disappointment of the housing
collapse and the shock of the 2008 market meltdown still linger, making
most of us, shall we say, more circumspect about how we spend and
invest.So given this more cautious attitude what should you —
or, for that matter, someone with an even bigger refund coming his way
from the IRS — consider doing with a tax windfall?Here are three suggestions:1. Build (or rebuild) your emergency fund.If
nothing else, the experience of the past two years reinforces the value
of having an emergency fund to fall back on. Whether it’s a pink slip
at work, the loss of income from investments, or just an unexpected
expense popping up at an inconvenient time, keeping three to six
months’ worth of expenses tucked away in a highly secure place can give
you financial wiggle room that could mean the difference between being
able to meet your obligations or having to scramble to stay afloat.So
if you depleted your emergency reserve during the recession, a tax
refund can be an excellent way to begin rebuilding it — or give you a
jumpstart on a new cash cushion if you didn’t have one before.Remember,
though, this is money that you absolutely, positively want to be able
to count on when you need it. So you don’t want to take any risks with
it. Which means you should stick to highly stable investments such as
insured savings accounts, short-term CDs, or high-quality money-market
funds.Granted, these options are paying minuscule yields of 1%
to 2% at the moment (actually less in the case of money-market funds).
But as über-investor Warren Buffett told Berkshire Hathaway investors
this year in his shareholders letter when explaining why he keeps
upwards of $20 billion in cash equivalent assets that pay only a
pittance: “We sleep well.”2. Repay high-interest debt.If
you’ve already got some money tucked away as a buffer against hard
times, there’s a way to enhance your financial security while also
effectively earning an attractive rate of return: Use your tax refund
to pare down debt that carries a high interest rate.Credit
cards are a prime candidate. Let’s say, for example, someone expecting
the average $2,800 tax refund has exactly that much outstanding on a
credit card that charges a 16% annual rate and requires a minimum
payment of 4% of the balance. If that person makes only the minimum
payment, it will take 105 months to pay off the card.But
applying the $2,800 tax refund to the account would wipe out the
balance immediately and save $1,297 in interest. The money that would
have gone to principal and interest payments each month could then be
invested (as opposed to spent).Clearly, the amount of interest
savings and freed-up cash will vary depending on the size of your tax
refund, the interest rate you’re paying and how much of your refund you
devote to wiping out debt.3. Invest it.If you’ve set up
an emergency fund and have made a dent in your credit-card or other
high-interest debt, you can then think about investing your tax refund.Question is: what’s the right way to go about this?Many
articles will rattle off a list of stocks or mutual funds that are
supposed to have the best return potential at the moment. More often
than not, that’s just an invitation to get into hot investments that
are ready to cool.I contend you’re better off thinking about
why you’re investing — whether it’s accumulating a down payment for a
house, paying a child’s college tuition, building a retirement fund or
for some other reasons — and then deciding how your refund fits into
an investment strategy appropriate for reaching that goal.In
most cases, that means thinking not in terms of one investment — a
stock, a bond, a mutual fund — but creating a mix of stocks, bonds or
mutual funds that’s appropriate given the amount of time you have to
invest. If you already have a diversified portfolio, then you can divvy
up your refund among the investments you already own. If you’re dealing
with a relatively small amount of money where splitting the refund in
several pieces is impractical, you can plow it into whatever part of
your portfolio is lagging, giving you a head start on rebalancing.If
you don’t have a diversified portfolio, it’s time to think about
building one. And for the names of specific stock and bond mutual funds
that you might consider,see our Money 70 list of recommended mutual
funds and EFTs.The idea, though, is that you don’t want to just
throw this money into whatever investment the nattering nabobs of the
investing world are babbling about today. You want it to fit into a
coherent investing strategy.Of course, unless you’re talking
about one helluva big check, your tax refund alone isn’t likely to
dramatically change your financial future. But if you follow up with
regular saving and smart investing, your refund may be able to help put
you on the road to financial security — or keep you moving ahead on
that path if you’re already on it.