Counting on a tax refund? Here are some smarter ways to spend it

Those W-2s and 1099s are starting to roll in and you're already dreaming of the day you check your bank balance and there it is — that nice fat direct deposit of your tax refund. Of course, you've heard that you shouldn't be getting a big refund — you should be saving that money every month, earning interest yourself instead of giving it to the government.

But most of us ignore that advice. According to the Internal Revenue Service, seven out of 10 of us get a refund, averaging almost $2,800. Is that so bad? It depends who you ask.

Ideally, you should change your habits so you can put money toward your goals with every paycheck. But if that doesn't work for you, it might be OK for you to keep getting a refund. Tonya Rapley, creator of My Fab Finance, says, "I'm not against tax refunds if they allow people to save more than they would on their own. Some people don't have the willpower to save."

But you do need to be smart about how you spend it. "You can invest some, save some and spend some. The main thing is to focus on what's most important for you right now in your situation," says Jackie Beck, a debt reduction expert who created the app Pay Off Debt.

YOU DIDN'T WIN THE LOTTERY

This might be the single biggest chunk of money you receive all year. Still, "It's not a windfall. It's money you earned all year long. You worked for it, so you may as well use it to achieve your goals instead of blowing it," Beck says.

Financial expert Jennifer Streaks agrees. "I'm not against doing fun things," she says. "But there's nothing wrong with putting aside some money first. I would never say you should blow your entire return. Put some back into something that will improve your life."

She'd limit splurge spending to 25 percent of your return at most, and even that depends on how you define a splurge. "A good pair of work boots you're going to wear every day? OK, fine," she says. But a pair of Christian Louboutins? Not so much.

And don't overlook the value of making your financial situation more comfortable. Although it might not have the wow factor of a day at the spa, it can bring a degree of peace to your life to worry less about money. "To not be financially stressed about everyday bills to me is so worth it," Streaks says.

SAVE, SAVE, SAVE

Our experts agree that starting or growing your emergency fund is the first place you should park your refund dollars. Without an emergency fund, you'll be forced to turn to debt when an unexpected cost pops up. Ideally, you should build up enough savings to cover your expenses for six to eight months.

If your emergency account is funded, you can work toward other saving goals:

  • Your retirement. You have until April 15 to contribute to an IRA for 2018.
  • A child's education. Contribute to a 529 plan and sock away money for college expenses.
  • That new car or big vacation. Maybe there's a large purchase in your future. Beck recommends setting up a savings account just for your goal. "People are more motivated to save when they see what the money is going toward, rather than just saving," she says. "When you see your progress and you know why you're saving you want to keep doing it."

REDUCE DEBT — AND ANXIETY

"Paying down debt will save you a lot of money and remove some stress," says Beck.

  • Take care of that parking ticket, or anything else with major ramifications. A $30 unpaid parking ticket can snowball to hundreds of dollars with additional fees and surcharges. And that expense could get even worse if your car gets towed and you can't get to work.
  • Pay down loans. If you're carrying balances on credit cards or owe money on other loans, reduce the balances with a chunk of your refund.
  • Get caught up — or get ahead — on your utility bills. "A lot of people come out of winter with a large electric bill," says Streaks. You can also build yourself a cushion by paying extra on your cell phone, cable, Internet, or utility bills, then continuing to pay monthly. That way, if something happens and your income drops, you can go a month or two without having to pay these bills.
  • Take care of repairs, maintenance or upgrades. Does your car need new tires or brakes? How old is your washing machine? Upgrade old appliances before they stop working and you'll have time to research the best values. New appliances might cut your energy bills, too.

TAKE CARE OF YOU

If your savings and debt are in good shape, spend a little money on yourself:

  • Invest in your health. Maybe you've been putting off a physical, screening exam, or dental checkup because you don't have insurance, or your deductible or co-pays are high. Now is the time to book that appointment. A dental cleaning is a lot cheaper than a crown or root canal.
  • Grow your income. Enroll in a seminar or certification class that can help you move up at work, be a more attractive candidate for a new job or launch a side hustle.
  • Treat yourself. Get that massage, try that new restaurant, or finally buy that Vitamix you know will transform your smoothies. "Talking about financially wise decisions doesn't negate the fact that we do deserve to treat ourselves now and then," Rapley says.

WHAT ABOUT 2019?

Tax time is a great time for a financial gut check. You can break down what you've done with your money over the past year, see if it aligns with your goals, and decide whether you need to make any changes.

You should also prepare for upcoming expenses. Have a plan for any additional money that comes your way, whether it's a state tax refund, a fat Costco rebate check, or an old savings account you forgot about. "I know if I found money I would already know what to spend it on. My mind is already set for that," Streaks says.

If you want to get your money throughout the year instead of in a big refund, calculate the amount you should have withheld for 2019. Then, you can set up an automated payment so the money that would have been withheld goes straight into savings, debt payments, or investments. But not straight to shopping, right? 

More from NBC News: 
How to pay off your loans using the 'debt avalanche' method 
How to get out of debt and build a 'wealth snowball' 
How this couple paid off $65,000 in credit card debt and student loans in five years

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