The 7 best ways to use your tax refund

Hand holding fanned out money

About seven in every 10 Americans will receive a tax refund.

So the odds are pretty good that you'll be getting one -- possibly a good-sized one. According to the Internal Revenue Service, the average federal refund will be $2,366, about 3.3% more than last year.

But before you start scanning the sales flyers for big-screen TVs or cruises to Mexico, why not think about putting that money to work for you.

We asked some of the best financial advisers we know what they'd do with a tax refund and came up with 7 smart, money saving moves that will make your check from the Treasury even more valuable.

Smart move 1. Put the money in a retirement account.

Deposit your check in an Individual Retirement Account or boost your contribution to the 401(k) plan at work and use the refund to offset the lost take home pay.

You'll make even more money if your employer matches all or part of your contributions and those retirement plans come with all sorts of tax advantages.

"It's a great way to take money from your left pocket, put it in your right pocket and have the IRS pay you for doing so," says Ron Santini, a Plantation, Fla.-based CPA, tax consultant and financial planner. "I call it getting even with the IRS."

Smart move 2. Pay off high-interest credit card debt.

The average refund would allow you to save $300 to $700 over the next 12 months if your credit cards are charging 14% to 30% a year in interest. Plus you'd owe less and boost your credit score, making it easier and cheaper to borrow in the future.

Smart move 3. Establish an emergency fund.

A Consumer Federation of America survey taken this year found that only 40% of adults have any money set aside to cope with losing their job or a major accident. That number drops to 19% for young adults 18 to 24.

At a minimum, you'd want a savings account or money market fund with enough money to cover at least three months' worth of expenses -- six would be even better.

We're not talking about every expense you have right now. You're basically looking for a number that would keep a roof over your head, food on the table, the utilities turned on, your car running (if you have one) and your insurance premiums paid up.

Smart move 4. Buy disability insurance.

Most people know they need life, homeowner's and auto insurance, but don't protect their biggest asset, which is their ability to earn an income. If you can't get disability insurance through work, or if you want coverage that won't go away if you change jobs, ask your insurance agent about an individual policy. Make sure it's guaranteed renewable, non-cancellable and specific to your line of work.

Smart move 5. Reduce you utility bills.

Add insulation to your home, replace leaky windows or install a new, more energy-efficient air conditioner or furnace.

Not only will it save you money every month, it could also save you on next year's taxes. The Energy Policy Act of 2005 allows consumers to take a 10% tax credit, up to $500, for improvements that cut energy use, such as new windows and doors, insulation, heating and cooling systems, and solar panels.

Smart move 6. Invest in yourself.

Go back to school to improve the skills you need for your current job, or begin training for a new career. "After five to 10 years on a job or in an industry, it's time to refresh your mind," says tax expert Eva Rosenberg, publisher of

Smart move 7. Treat yourself.

You worked hard in 2006 and you'll be much more inclined to save if you allow yourself a small splurge. Maybe you get tickets to a concert or a ballgame, pick up a season pass to the theater or a local theme park, spend a day at a spa or playing golf, or take a romantic weekend trip.

"While it's true money won't buy you happiness, constant sacrifice won't get you there either," says Michael Rubin, a Portsmouth, N.H. CPA, certified financial planner and author of the book "Beyond Paycheck to Paycheck." "Life is about balance. You need to spend some of it on things that make you happy, whatever that might be."

One final piece of advice.

If you haven't filed you taxes yet, you can receive your refund more quickly and easily by having it directly deposited.

For the first time the IRS will even let you split your refund between up to three checking and savings accounts, including IRA accounts, at as many as three different financial institutions.

All you have to do is use Form 8888 and give the IRS the name of each institution, the routing number, the account number and the amount you want deposited into each account.

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