How To Use Your Tax Refund

Did you receive a refund from your 2012 taxes? Here are some smart-finance ideas for how to spend that hard-earned cash:

PAY OFF DEBT If you have high-interest rate debt, such as credit cards, consider paying off or lowering your outstanding balance. The interest rate on your card could be 22 percent, or possibly even higher, making this option one of the best ways to spend your refund.

EMERGENCY FUND Most people need three to six months of living expenses set aside for potential unforeseen emergency expenses, such as job loss or medical emergency.

MAKE YOUR HOUSE ENERGY EFFICIENT Ask your electric co-op about an energy audit to determine changes you could make to possibly reduce your energy usage for future savings on your energy bill. (See this month’s Energy 101 to learn about 2013 energy incentives.)

IRA OR ROTH IRA CONTRIBUTION Taxpayers have until April 15, 2013, to make contributions for 2012. If you miss the deadline, consider allocating it toward 2013 contributions.

NEXT YEAR’S TAXES If you are self-employed, or pay estimated taxes, use your refund toward next year’s tax burden, especially if you expect your taxes to increase.

ADJUST WITHHOLDINGS To receive more of your own money throughout the year (and not in a lump sum refund), consider adjusting your withholding amounts for 2013 by completing Form W-4 with your employer.

SARA PEAK is a freelance writer with expertise in finance and wealth management.