Last year the Internal Revenue Service cut nearly 120 million refund checks with an average amount of nearly $3,000 each. If you’re in line for a nice fat refund this year, creating a game plan before the money hits your checking account can help ensure it generates maximum value.
Paying down credit-card debt, shoveling more money into an emergency cash fund, and funding your 2012 IRA are solid go-to refund moves. But c’mon, do you need to hear that again? Didn’t think so. Here are some spending options for this year’s tax refund. Yes, spending -- with an important twist: What you spend today pays a dividend down the line.
FIX UP YOUR HOME. James Carey, co-author with his brother Morris of Home Maintenance for Dummies, understands that strapped homeowners have been “making do with what they have” rather than tending to basic maintenance. That increases the odds that today’s small problem could become a budget buster or safety hazard if left unintended. Carey suggests making a list of everything that isn’t up to snuff and prioritizing what you want to tackle. His website, onthehouse.com, is full of maintenance tips and DIY advice.
For example, maybe you can live with a busted icemaker, but flickering lights or an outlet that isn’t working can be a sign of a dangerous electrical problem, such as an overloaded circuit. And while that shower drip doesn’t seem like a big deal, it can signal that something bad is happening behind the tile. “In this day and age it makes sense to tackle the projects that address the long-term sustainability of your home’s integrity and value,” says Carey.
DRIVE A GOOD DEAL. We’re all angling to hold on to our cars a bit longer. According to automotive marketing and research firm Polk, the average new car is now held for a record high 71 months. In 2008, it was less than 60 months. Spending on some preventative maintenance is both smart and safe.
Dan Edmunds, director of vehicle testing at Edmunds.com, recommends a set of new tires and an alignment while you’re at it. “There’s a tendency to buy a tire when you need it and to buy just one or two. A complete set will improve your handling and give you a much better ride.” For a standard family car, Edmunds says you should be able to find solid name-brand tires for around $100 apiece (or less). That all-important alignment might run you $100 to $150.
If your odometer is closing in on six figures, Edmunds suggests replacing the timing belt. It’s not a small outlay -- it can be $1,000 or more, depending on make and model -- but if it snaps, you’re looking at thousands to rebuild your engine (or more likely use toward a new car). Your original owner’s manual will have information on the mileage at which a change is recommended.
SHAPE UP. Use your tax refund to jump-start a health kick -- a gym membership or series of sessions with a trainer. Or simply cordon off a corner of the garage or extra room for a small at-home gym. Fitnessmagazine.com has a series of best buys for home workouts, ranging from $100 or less, to $1,200 for pro-level equipment.
Long term, you’re giving yourself a fighting chance of having to shell out less on medical care when you’re retired. Even in its current (nonreformed) state, Medicare typically covers just two-thirds of medical costs for the over-65 crowd. The Employee Benefits Research Institute estimates that a 65-year-old couple in 2020 whose cost for medications falls at the median will incur $454,000 in out-of-pocket expenses for everything not covered by Medicare. If that couple’s drug expenses fall in the top 10 percent, out-of-pocket expenses will be $200,000 higher. Suddenly spending some cash today to get in shape doesn’t seem so profligate, eh?
TAKE A BREAK. More than half of us didn’t use all our allotted vacation time last year, according to a Jet Blue survey. On average, the workaholics among us forfeited 11 days, or about 70 percent of what we’re entitled to. Studies show that folks who took an annual break had a lower propensity for developing heart problems and ultimately dying from a coronary. An added bonus, as behavioral economist Dan Ariely explains in his book, The Upside of Irrationality: Buying new stuff gives us only a temporal buzz, while experiences can deliver long-lasting upside.
ADVANCE YOUR CAREER. The suits in the C-suite get executive coaching as a perk. If you’re not there yet and want to elevate your career or just get unstuck, consider a few sessions with a career or life coach. According to the International Coach Federation, the average hourly cost can run about $200. A few sessions that help you strategize on how to step up the corporate ladder, or step out into a new job that floats your boat a bit more than the current one, can be a great investment.
Claire Bula considers the $3,000 she paid in 2009 to work with a career coach "the best money I ever spent." A string of jobs and career shifts, including work as a marketer and a prosecutor, weren't fulfilling. Six months of long-distance work with career coach Maggie Mistal helped Bula drill down on her skill strengths and focus on what makes her tick career-wise. "I've found two fabulous jobs since working with Maggie, and our work helped me with that," says Bula, who is the marketing manager at Electronic Ink, a consulting firm that helps businesses assess work processes and technology systems.
If it’s basic training in new technologies you need, odds are that in this economy your company isn’t likely to pick up the bill. Pay for it out of pocket if it will keep you competitive and burnish your résumé. If you itemize on your federal tax return and the cost of business-related education exceeds 2 percent of your adjusted gross income (along with some other miscellaneous expenses), you may be able to deduct the cost of training.
WRITE YOUR LEGACY. Or more specifically, have an estate planning attorney draw up the legal docs you know you need to take care of but have been procrastinating over for years. That means a will, probably a revocable living trust, a power of attorney, a power of attorney for health care, and an advance directive. The cost might be as much as $2,500 for a fairly standard package of docs. But that’s some serious peace of mind you’re buying.