5 Smart Ways to Spend Your Tax Refund

Last Updated Feb 25, 2011 1:24 PM EST

The average tax refund in 2010 was $3,003, according to the IRS. That was up 5% from 2009, thanks to a variety of tax credits stemming from the $800 billion government stimulus, and most used their refund to pay down debt or save.

This year? Not so much. The National Retail Federation recently surveyed more than 8,000 consumers and found that while the majority will still opt to save or lower debt with their refunds, the percentage of those choosing to spend their refund check this year surged 12.5%. The NRF say 13.2% of Americans will spend their refund on a big-ticket item like furniture, a vacation or a big-screen TV.
While a big-screen TV may be cool, there are better ways to spend your cash. Here are five timely ways to make the most of your lump sum refund, by buying items that either carry seasonal discounts or give you a nice return on your investment - or both.

1. Down Payment on a Fuel-Efficient Compact Car
As automakers attempt to revive sales, they're responding to the needs of budget-conscious consumers by offering more affordable vehicles with great mileage, quality and driving appeal. In fact, car experts tell me that we have far more souped-up options in the economy-size category, with prices ranging from $15,000 and $20,000, than ever before. And remember: a nice down payment - say, $3,000 - helps to ensure favorable borrowing terms.

2. A Last-Minute Cruise
I like the idea of spending money on a vacation because, as research shows, it's one of the best ways to use money to boost happiness. And right now the timing is ideal for looking into a cruise voyage because we're approaching the low or shoulder season for various routes, a time when you tend to see prices drop. In addition to being the month you'll hopefully receive your tax refund, April is also when you'll likely find deep discounts on Alaskan, Bahamian, Mediterranean and European cruises. Some websites to help you comparison shop: Cayole.com, Travelocity.com/Cruises, Kayak.com/Cruises and CruisesOnly.com.

Just make sure that you're aware of any risky weather conditions during "off seasons." If, say, the region is prone to hurricanes during the time of your trip, you may want to rethink the cruise or buy trip-cancellation insurance. (Check out fellow MoneyWatch contributor Ray Martin's piece on the dos and don'ts of travel insurance.) By the way, if you have money left over: March is said to be an excellent time to buy luggage, due to a slowdown in overall travel.

3. New Laptop
One of the best times of year to buy a laptop is April, according to this pricing graph at DealNews.com. The site tracked prices on a Core 2 Duo-based laptop - a pretty standard laptop - and found April to be the month with the lowest prices. Why that's the case is not absolutely clear, but DealNews suspects it may have something to do with the fact that manufacturers usually announce new models during that month, prompting them to slash prices on older models to clear room for the new. (Check out fellow MoneyWatch blogger Stacey Bradford's piece on the most reliable laptops.)
4. Lawn Care
Dr. Michael J. Seiler, a professor and Robert M. Stanton Chair of Real Estate and Economic Development at Old Dominion University, has done extensive research on real estate psychology and found that as far as buyer emotions are concerned, the first and last impressions of a home matter most. That usually means the front and backyard views. If you're planning to sell your home in 2011, investing in your curb appeal - with some fresh mulch, plants, flowers and a new coat of paint on your door and mailbox - could make your home more attractive to buyers.
5. Energy-Efficient Kitchen Appliances
The average household energy bill totals $1,400 a year, according to the Alliance to Save Energy. ENERGY STAR qualified appliances - which can reduce your annual utility bills by as much as 30% - may be a wise investment. Real estate experts say doing so can also help boost the resale value of your home just in time for the spring and summer selling seasons.
More on MoneyWatch: Photo courtesy: MigRodz's photostream on Flickr
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    Farnoosh Torabi is a personal finance journalist and commentator. She is the author of the new book Psych Yourself Rich, Get the Mindset and Discipline You Need to Build Your Financial Life. Follow her at www.farnoosh.tv and on Twitter at @farnoosh.

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