Fashionista Finance: What to Do with Your Income Tax Refund

If you’re fortunate enough to be getting an income tax refund (or unfortunate as some may argue that a large income tax refund means you gave Uncle Sam a big ole zero interest loan last year), it’s important that you don’t blow it all in one place. Tough times call for smarter money habits. There will be no MAC or Neiman Marcus all-out sprees for the financially smart fashionista this year. Check out a few of my suggestions on what to do with that extra green.

1. Put half of it away right away. Many people receive tax refunds in the thousands and it’s really tempting to splurge it on a big ticket item, but I beg you to resist that urge this year, fashionistas. Yes, I know the new spring 2010 Gucci Helena Open-Toe Platform Boots are very hot, but that $1550 (before tax, mind you) would look so much HOTTER in your savings account. Plus, you need an emergency fund of about 8-12 months worth of living expenses in case you become the victim of a layoff. And don’t forget to save for rainy day things like car repairs and medical bills.

If you’re the type (like me) who find it easy to transfer money in your savings, but hard to resist from transferring it back out, look at options like holiday clubs or vacation clubs at your local credit union. Club accounts can often be opened with as little as $5 and every deposit you make normally cannot be easily withdrawn until the holidays.

2. Donate 10%. The recent tragedy in Haiti has donating money on the minds of nearly everyone around the world. Find a reputable charity (like the Red Cross, Former Presidents’ Clinton and GW Bush foundation, or Wyclef’s Yele Haiti) and give with your heart. The IRS is allowing you to deduct a donation to Haiti on your 2009 taxes. There are also thousands of other charities you can also donate to. Do your research and give! Also look to see if your company offers any donation matching programs that can easily double your givings.

3. Pay down your debt. Depending on your situation, try to put down a major payment to diminish some of your debt. Don’t spend every penny of your refund on debt unless you also have a reserve of living expenses handy. Even if you can’t afford to pay off your balances in full, a bigger payment now helps in reducing future interest payments and in some cases can reduce your monthly payment on revolving accounts.

4. Get yourself something nice. Yes, I did warn you not to go out splurging, but we’re not fashionistas for nothing! It’s hard to not indulge in a little treat every now and then. But instead of going crazy, get yourself something timeless like a great pair of quality leather boots. Not only will you be fashionable and treat yourself, you’ll also have your item for seasons and seasons and SEASONS to come.

Those are my quick tips. Now it’s your turn! Tell me what your tax refund plans are.