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10 smarter ways to spend your tax refund

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Best Ways to Spend Your Tax Refund

Nearly 75 percent of all American taxpayers last year received a refund -- to the tune of nearly $3,000 on average, according to the  IRS. And, while the best budgetary move is to pay off debt or invest that money, some experts say spending it wisely is actually not a financial crime.

"When something provides us with a lot of pleasure, we should do it," says behavioral economist Dan Ariely, author of Predictibly Irrational. "Of course, it's better if we can do it with less cost." But there's a big difference between an impulse buy that you'll regret in a month and making a purchase that gives you pleasure today and makes financial sense. Here are 11 smart splurges that, over time, will pay for themselves. And at $1,000 or less, the average taxpayer will have money left for the IRA.

10 smarter ways to spend your tax refund

SodaStream

Soda machine

SodaStream

Buy this: SodaStream Crystal ($179.95)
Ax this: 36 cans of soda a week (around $14)
Start saving in: 5 to 9 months
Bonus: No more lugging cans or bottles from the grocery store

Using a water filter instead of bottled water is one of the most obviously sound economic and environmental decisions a consumer can make. But while it may seem like an easy switch to give up bottled water, we still love our carbonated drinks: Americans consume the equivalent of two cans per person per day of soda and sparkling water.

Home soda machines are simple to use, and a good one can cost as little as $80, though nicer ones offer greater control over the level of carbonation and long-lasting glass carafes. Once you have the machine, you can churn out a liter of soda water for about $0.25 (the cost of the CO2 gas). And you control what you put in the water, so there's a potential health benefit over commercial sodas for using less flavoring or fruit juice to sweeten your drink.

10 smarter ways to spend your tax refund

Royal Philips Electronics

Espresso machine

Buy this: Saeco Aroma ($229)
Ax this: Three venti-sized lattes a week
Start saving in: About 4 months
Bonus: You'll be the new office hero

Money-saving experts focus on the financial waste of the daily latte habit more than perhaps any other. With good reason: Invest that $4 a day for 30 years and if you earn 8 percent you'd have saved $190,453. But it's hard to say no to the foamy, caffeinated goodness of a fancy drink in return for a reward that's three decades off. When trying to change a habit like this, it's essential to understand why you do it in the first place, says Syble Solomon, a financial behavior expert and founder of Money Habitudes, a card game designed to help identify money attitudes and habits. "If you're really doing it for a social break, or to get out of your office, you likely won't have much success if you try just stopping," she says.

But you may be able to substitute a new ritual that serves a similar purpose. Spring for a nice espresso machine to keep in your office, and enlist your afternoon coffee crew to help you stay stocked in coffee and milk. You'll be able to brew your afternoon pick-me-ups for less than 50 cents. If getting fresh air is an important part of the ritual, pour the coffee in a travel mug and head outside. It will work if your colleagues are willing to buy-in, says Solomon. If not, you can still save money by seeing your friends two days a week at the coffee shop and brewing your own the rest of the time.

10 smarter ways to spend your tax refund

File

Video-game rental plan

Buy this: GameFly basic plan ($15.95 a month)
Ax this: One video game (around $50)
Start saving in: 11 months
Bonus: GameFly will also buy your old games for credit

Some Internet operations are trying to do for video games what Netflix has done for movies: Deliver them to your door, for as long as you like, for a simple monthly fee. "This concept is bang on," says CNET editor-at-large Rafe Needleman. "The idea of buying and owning media is growing more ridiculous."

GameFly.com is the most well established service with more than 7,000 titles to choose from. If your family constantly rents games, or buys more than a couple of new releases per year, then a subscription could make financial sense, too. After a discounted first month, GameFly.com will send you one game at a time for $15.95 per month, or two games for $22.95. Once your kids (or, who are we kidding, you) master the game and grow bored, just send it back in the pre-paid shipping envelope and a new one will show up in your mailbox.

10 smarter ways to spend your tax refund

File

Bagless vacuum

Buy this: Dyson DC 25 All Floors ($499.99)
Ax this: A vacuum that requires regular upkeep purchases, such as bags
Start saving in: About 5 years
Bonus: Dyson uprights come with a 5-year warranty, longer than many other major brands

Nobody wants to spend extra money on something as pedestrian as a vacuum cleaner. But the only thing more annoying than dropping dough on a vacuum is buying bags, belts, filters and other upkeep necessities every few months to keep it running. Bissell, Dyson, Hoover, Kenmore and more make bagless upright vacuums that suck well on a variety of surfaces. The Dyson DC 25 All Floors is certified as asthma and allergy friendly by the Asthma and Allergy Foundation of America, comes with a washable "lifetime" HEPA filter and has that signature Dyson techie appeal.

10 smarter ways to spend your tax refund

File

Women's shoes

Buy this: Farylrobin Tamara wedge ($158)
Ax this: A pair of $50 shoes you wear only twice
Start saving in: One season
Bonus: To ensure frequent wearing, be sure your splurge shoes are in a basic color and appropriate for your weather

Too many women have closets full of $50 shoes they don't ever wear because they're not very comfortable. (Why? Either the buyer was seduced by a "bargain" or she didn't follow the cardinal rule of women's shoe shopping: Buy at the end of the day, when feet are tired and swollen.) "Comfort is the single most important factor in determining whether or not a person will wear a shoe," says Kathryn Finney, aka The Budget Fashionista blogger. You probably have had shoes you love on occasion, so you know what happens: You wear them with utter devotion, until they fall apart.

Instead of just looking at the price tag, Finney uses what she calls the cost-per-wear formula -- the total cost of the item divided by the number of days worn -- to determine its value. You're doing well with a pair of shoes if you can get down to $1 to $2 cost per wear, Finney says, "which isn't difficult to achieve." Even a $160 pair of sandals can satisfy the Fashionista's cost-per-wear requirement before Labor Day.

10 smarter ways to spend your tax refund

Weber

A backyard grill

Buy this: Weber Genesis E-310 gas grill ($700)
Ax this: Eating out once per week
Start saving in: One summer
Bonus: Since you control the food you buy, grilling can be a healthier option than dining out

It may seem far-fetched that buying something as decadent as a giant barbecue could be a money-saver. But behavioral economist Ariely actually experienced first-hand how a seemingly hedonistic object can be a value. "It was just a pleasure to watch in action," he says. So he and his family used it, a lot, and it became a substitute for going out to eat.

The key is to splurge only on those features you're actually going to use, says Celia Kuperszmid Lehrman, deputy home editor of Consumer Reports. "Rotisseries are one of the features people think they're really going to use, but don't," she says. Also, don't be seduced by the BTU figure. "In our testing, grills with higher BTUs didn't heat up faster or sear better," she says.

10 smarter ways to spend your tax refund

File

A city bicycle

Buy this: Globe Daily 1 ($520)
Ax this: Driving three miles three times a week
Start saving in: Less than a year
Bonus: You'll also burn more than 11 pounds' worth of calories in the same time period (based on a 180-pound rider)

According to federal travel statistics, 50 percent of the trips we take are 3 miles or less, an easily bike-able distance for those in areas with gentle terrain. And AAA puts the total cost of operating a car at 56.6 cents per mile -- and rising every day with the price of gas -- so if you get riding you should be able to save enough to break even from buying a nice bike within a year. There are a few ways to ensure that the bike doesn't just sit next to the Rollerblades gathering dust in your garage. First, buy a quality bike from a local bike shop instead of a cheap-o from a big box store -- it will last longer and be more fun to ride. Also, think ahead about what trips are doable by bike, commit to those, and tell a few people of your plan (to keep you honest). Doable: The corner store, your favorite sandwich shop, the kids' soccer practice (they may be excited to ride, too). Not so much: The week's grocery shopping, hauling your old washing machine to the dump, etc.

10 smarter ways to spend your tax refund

File

High-efficiency washing machine

Buy this: Whirlpool WFW94HEXW ($1,299)
Ax this: A non-Energy Star top loader
Start saving in: About 4 years
Bonus: In certain states and zip codes, you can receive an additional rebate on 2011 purchases of highly efficient appliances, sponsored by the U.S. Department of Energy. We found rebates across the country of more than $100 for this model on energysavers.gov/rebates

OK, a washing machine doesn't quite have the sex appeal of a 55-inch plasma TV, but stick with us on this: It does offer a prime opportunity for money saving if you take a long-term view. You don't need the most blinged-out appliance, says Kuperszmid Lehrman of Consumer Reports. "But you do want to spend on an energy efficient machine." Energy Star requirements vary for different styles of appliances, she says, so don't rely on the designation alone as a savings indicator: You could have an Energy Star top-loading washer that still costs more to operate than a non-Energy Star front loader. Instead, look on the Energy Guide label for the estimated yearly operating cost. "This is consistent among all products," says Kuperszmid Lehrman. The Whirlpool Duet WFW94 HEX, which ranked first in Consumer Reports' most recent testing, costs just $18 per year in electricity. It is also very water efficient, using as little as half the water of a conventional top-loader. "Large appliances can last 15 years or more," says Lerhman, so savings can pay out for a long time. And admit it, that's one pretty good-looking machine, isn't it?

10 smarter ways to spend your tax refund

Luxury low-flow showerhead

Buy this: 1.75gpm showerhead ($84.95)
Ax this: Your old 5gpm showerhead
Start saving in: About 7 months
Bonus: You'll heat less water, and spend less on electricity

It's easy to roll your eyes at the idea of an eco-showerhead if you experienced early iterations designed decades ago, with their piddling, anemic sprays.

But with better design and pressure control, you no longer have to sacrifice a piping hot, powerful shower to save water -- and money. Pre-1992 showerheads often use five gallons of water per minute (gpm) or more. Post-1992 Energy Act showerheads use a mandatory 2.5 gpm or less. Very efficient models, which use 2gpm or less, can offer multiple settings or sprays. The Kohler Forte 1.75gpm showerhead has three settings: wide spray, focused spray and concentrated utility spray. Installing a low-volume toilet will save you much more water, but a showerhead requires much less up-front investment and is a quick and often simple install job.

10 smarter ways to spend your tax refund

File

A better mattress

Buy this: Serta Perfect Sleeper queen ($1,000)
Ax this: A mattress that makes your back hurt
Start saving in: 7 years
Bonus: To find a comfortable mattress, lay down on it in the store for 15 minutes

You spend a third of your life using a mattress, and a good one can last 10 or 15 years or more, so it makes sense to buy a quality, durable one. The problem is that there are no universal manufacturing standards or terminology, and so there is no objective information available for consumers to be sure they're buying something with lasting comfort -- even Consumer Reports doesn't rate mattresses.

Here's what we do know: In coil spring mattresses, the type most people buy, the coils typically don't fatigue. It's the material covering the springs that wears, says Edward Peterson, manager of product evaluation at Stork Materials Technology, an independent lab that tests mattresses. "With certain materials there can be a certain amount of settling," he says. If you're buying in the mid-range or up from a major producer, the price difference is usually due to the type and amount of material used to cover the springs.

Consumer Reports says a good mattress should last about 10 years. Be sure the mattress you're considering has a comfort guarantee, and read the fine print of warranties (many have significant "restocking" fees). Also, don't pay full price. Consumer Reports' survey found that 72 percent of those who tried bargaining for their mattress got a better deal. Retailers set prices, so they're not consistent: A Serta Perfect Sleeper queen set (10-year limited warranty), for example, may be priced anywhere between $700 and $1600.

10 smarter ways to spend your tax refund

File

Quality kitchen knives

Buy this: Wüsthof Classic Cook's 8" ($119.99)
Ax this: A stamped knife for half the price
Start saving in: 5 to 15 years
Bonus: Experts say don't waste your money on knife sets -- even chefs get by with just a few favorites, typically a cook's knife, slicer, bread knife and small utility knife

Invest in a quality forged kitchen knife, and it will be the last one you ever buy. Top-tier forged knives from companies such as Henckels and Wüsthof carry lifetime warranties, provided you have properly cared for the knife. These knives cost more, but are shaped from a single piece of molten steel. They tend to hold an edge longer, though they require sharpening. Ask to hold the knife before buying. It should have a balanced weight and feel in your hand. If it doesn't, then it doesn't fit. Try a different size or shape. While it may take a very long time for a good-quality knife to save you money with its durability, you can achieve instant savings if the knife inspires you to cook at home more -- or if it gives you better control and helps prevent you from cutting yourself.

10 smarter ways to spend your tax refund

Skimp or splurge?

Sometimes a short-term splurge can have a long-term payoff. Jill Schlesinger explains when it's worth it to pay the up-front cost.


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