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4 Ways to Improve Your Life With a Tax Refund

NEW YORK (TheStreet) -- You may already have received valuable tips on spending your tax refund, but in this case more is better.

Pouring your refund into a retirement fund, credit debt repayment campaign or straight into the stock market are all good ideas. But they're not the only ones, and Philadelphia's East River Bank has a few additional ideas to handle that "nice little payout" that could be coming your way from the IRS pretty soon.

In general, bank executives say to keep it simple with a tax refund, and always use it to improve -- not damage -- your personal finances.

"A tax refund is a great opportunity to re-invest your money wisely," says Christopher McGill, president and chief executive of East River Bank. "Make sure to invest in ways to improve your financial position for today and the future."

McGill estimates that 75% of Americans earned a tax refund last year. He advises those getting one this year that while they should pay down debts first -- he calls that the "smartest decision" -- they might do it by following the "rule of thirds." In this model, here's how the refund gets used:

  • One-third toward debt, especially credit card debt.
  • One-third into retirement savings such as an IRA or 401(k) plan.
  • One-third just for you, even on a pleasure purchase.

But instead of buying a "frivolous" expensive handbag or a new set of skis, McGill and the bank suggest steering the money into a personal item or experience that is rewarding over the long haul. One example of that could be a new bike, which costs less than skiing and can keep you healthier, keeping health care costs down.

Instead of spending your tax refund drip-by-drip at a local Starbucks, go ahead and buy yourself a nice espresso machine that will pay for itself over time and save you money while still keeping java flowing through you on a regular basis.

You could also se your tax refund to enhance your job prospects by using some of the cash for continuing studies programs designed to make you more money in your career and make that career more fulfilling.

If you don't have life insurance (and you should, especially if you have children or a dependent spouse), apply some of your tax refund to a life insurance purchase. Taking care of your dependents will allow you to sleep better at night.

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