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5 smart ways to blow your tax refund

The average refund is $3,164 this year, and most people plan to save or pay off debt. For those who plan to spend it, here are some suggestions.

By MSN Money Partner Apr 6, 2011 11:13AM

This post is by Jason Notte of TheStreet.com.

 

http://www.thestreet.com/?cm_ven=msnpTax refunds shouldn't come with a scolding, and the average $3,164 refund being handed out by the IRS this year is no exception.

 

For much of the economic downturn and recession that preceded this year's tax season, taxpayers were repeated the same line when they asked what they should do with their tax return: Pay down debt, put it into an IRA or mutual fund, save.

 

Contrary to the prevailing sentiment, however, not everybody spent the early 2000s popping Cristal, building McMansions and bedazzling their clamshell cell phones with diamonds while their jobs hung by a thread. Those who saved, lived within their means and held down jobs while their neighbors applied for every credit card that came with a free T-shirt while still collecting unemployment may feel entitled to use their refund on something borderline frivolous this year, and don't need their self-righteous neighbors who recently found financial religion telling them what to do.

 

According to the National Retail Federation's 2011 Tax Returns Consumer Intentions and Actions Survey, conducted by BIGresearch, of the 66.2% of Americans expecting a refund this year, 42.1% will sock their refunds away -- up from 40.3% last year. Meanwhile, 41.9% will pay down credit card and mortgage debt.

 

That's perfectly OK, we guess, but it seems like the 13.2% of Americans who are going to spend their refund on a big-ticket item this year, up from 12.5% last year, will have a lot more fun.

 

"Despite the difficult unemployment situation across the country, Americans receiving a tax refund this year seem eager to plow this money back into the economy," said NRF President and CEO Matthew Shay. "With sales momentum continuing to build, NRF is becoming more bullish about the economic recovery."

 

The national unemployment rate dropped from 9.8% in November to 8.9% last month, with 27 states reporting increases in jobs from last year. It couldn't come at a better time, either, as the Consumer Confidence Index fell 8.6 points in March based on worries about inflation and increasing gas prices.

 

Simply put, new workers and thrifty recession veterans, your economy needs you.

 

With that in mind, there are several ways to spend that tax refund without getting stuck with a piece of technology that will be obsolete by the holiday season. Here are five ways to take that $3,164 shopping while still spending wisely.

 

Home remodeling 

You can't put in a granite countertop, add a deck or redo the bathroom for $3,164, but you can make an investment in your home that adds more resale value than any of those changes.

 

According to Remodeling Magazine's latest Cost. vs. Value Report, the only home improvement that gives a homeowner back his or her entire investment in resale value is swapping out existing front, back and side doors with steel doors. This may challenge your aesthetic sense and seem minor at best, but the average $1,218 spent swapping out an old door and jambs with a 20-gauge steel door with new casings and lock set consistently adds $1,243 (or 102% of its cost) in resale value.

 

You can spend $2,436 adding $2,496 in value to your home and still have more than $700 left over to either save or spend on a toy worth locking behind those new doors.

 

Travel 

If you have the money and the vacation time, by all means use them now. According to SmarterTravel's Anne Banas, there were seven major airfare hikes this year before mid-March, with fares jumping roughly every 10 days at one point.

 

Combined with ever-increasing fees, those rising fares are a great impetus for travelers to book their tax return into a trip quickly. Expedia, for example, is offering trips from New York to Barcelona that include a four-night stay at the Hotel Europark for $1,320 per person. If that's not quite your speed, they're also offering trips from Los Angeles to Honolulu and a four-night stay at the Kahala Hotel and Resort for $1,425 per person. With more than $3,100 to play around with, it wouldn't hurt to bring a friend.

 

How exactly is this a good investment? Well, there are always the pictures and memories they can't take away from you, but getting away to a place that in no way resembles work or home usually pays off in unloaded stress. You won't be alone in your splurge, either, as 11.9% of Americans told the NRF they plan to blow their return on vacations this year.

 

A new ride 

Did we mention gas is about 80 cents more expensive per gallon than at this time last year? Or that the average $3.60 a gallon Americans are paying is only going up this summer? Yeah, you may want to do something about that.

 

A new car is slightly cost-prohibitive -- especially the hybrid models that are being held up because their essential parts are made by Japanese manufacturers still recovering from that country's earthquake and ensuing tsunami -- and a used car isn't guaranteed to get you much better mileage than your current vehicle, especially for the price of a tax return.

 

Instead, try supplementing your everyday ride with something smaller and more efficient for the small trips around town. The Vespa LX 50 scooter, for example, only tops out at 35 mph, but gets 95 to 100 miles per gallon for its $3,299 price tag. If you're uncomfortable with going slightly over budget, though, the Honda Elite gets up to 50 mph and takes only 1.6 gallons of fuel at a clip for $2,999, while Honda's ugly bug-looking Ruckus costs $500 less, but gets 95 to 105 miles per gallon.

 

A place to rest 

This is a tougher one to recommend, as today's sought-after furniture style can turn into tomorrow's ironic off-campus decor within a generation. Living room sets, dining room sets and kitchen sets in classic, clean inoffensive styles are your best bet, but why invest in rooms you're only spending a scant few hours in?

 

The best way to go, especially if you're feeling cramped or if your old model's about to give way, is to throw that $3,100 or so into bed with you. That price can get you a king or California-king-sized Tempurpedic, a king-sized Stearns & Foster or a king-sized Simmons Beautyrest at department stores, but it also gets you the only piece of furniture you're going to use 2,100 to nearly 3,000 hours a year.

 

Your childhood back 

Ordinarily, "collectibles" make terrible investments, if only because a Precious Moments figurine will never have more monetary value than when it's sitting on a card-store shelf. If you're collecting what you love and doing your homework while doing so, however, a beloved hobby can get lucrative in a hurry.

 

The best example is in comic books, where such obvious choices as the Amazing Fantasy No. 15 that features the origins of Spider-Man sell for $150,000 to $300,000 and Action Comics No. 1 featuring the first appearance of Superman sells for upward of $1.5 million. If you're a big Spider-Man fan from way back, however, an Amazing Spider-Man No. 1 can still be had on eBay for around $3,000, but more intriguing prospects such as Amazing Spider-Man No. 122 (the death of the Green Goblin) or Amazing Spider-Man No. 49 (the first appearance of the Vulture) fetch roughly the same amount.

 

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2Comments
Apr 7, 2011 12:56AM
avatar

Gas is more than $4/gallon in California. Food price is high. We lost our job. Property tax is up. No medical insurance. Mortgage and Home Owner Association Fees are our nightmares. Our house is undervalue, etc.

What are we going to do with IRS Returns? It will help to get by until we get a new job.

 

Only few week shut down...Nothing. We need to cut government employees so they start to understand without the jobs and treat people better.

 

We got what we voted for....!

 

Apr 7, 2011 2:13PM
avatar
Woo-hoo.  I'm getting a storm door with mine!
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