Getting a tax refund this year? Think twice.

This year, most people are being more thoughtful about what to do with their tax refunds. We are in turbulent economic times, and experts say the recovery is not yet solid. Some people traditionally use that money as an annual income supplement or "bonus." Others view their check from Uncle Sam as "fun money" – something that should be spent on an indulgence of some kind. So, what should you do with your tax return? This year it’s a good idea to think twice before answering that question.

Assess Income.
Given the number of jobs employers have shed locally and nationally, it is wise to assess your own employment situation. Do you expect more layoffs at your company? Is your income based on sales? Do you foresee a dip in your monthly revenue? Shoring up your finances is always a good idea, but for many this year it is a critical step depending on your industry or field of work. The general rule regarding emergency saving is to build according to your short-, mid- and long-term financial plans, but to have at least three to six months (or more) safely stashed away. However, if your income is changing, or you anticipate it will be, so should your saving plan. A tax refund check placed in your short-term/emergency savings account helps boost the strength of your "safety net."

Consider Debt Reduction.
Many experts feel, regardless of the economy or your own financial health, it is important to reduce debt. Paying down credit cards and loans with your tax refund is smart. The average household has $10,000 in credit card debt and whether you are facing job loss or just maintaining your bottom line, less debt is always better.

Turn Over a New Leaf.
It may also be a good idea to be more thoughtful about day-to-day expenditures and consider ways to reduce the amount of cash leaving your wallet. The average cost of a cup of coffee is $1.50. For a five day work week, twenty work days a month, this adds up to $30.00. If going without that morning cup of Joe is not an option, then consider other ways to cut back. Once you identify those areas, use those funds to increase your savings account balance. If you do not currently have a regularly scheduled deposit into your savings or even have a savings account, why not use your 2009 tax refund to start one?

Invest in Your Retirement or Children’s Education.
With the little extra cash that a refund brings, there are investment opportunities to consider. For those who can afford some risk, there are opportunities in this economic climate. What products or services are in demand? What products are you using? What are your friends and family doing? Be aware when your investing instincts are coming from an emotional, rather than rational, place. Do your homework, and invest in areas you understand and are comfortable with. Once you've identified opportunities, start with a small investment and continue adding regularly over time – there are opportunities now in fixed-income investments we haven't seen in years.

You can always invest in you.
Tax refunds can also give you a chance to further build your Roth IRA or 529 Education Accounts in your children’s names. Either way, you are investing in a brighter future – yours or your child's.

Not convinced? Don’t "blow it."
Treat a tax refund like a paycheck. If you are tempted to splurge on something special, you can do so but be smart about it and consider making purchases in moderation. An important rule of thumb: don't use your refund as a down payment for a new car for example, or other large item that will place additional burden on your monthly budget. That new flat screen TV sale may be a temptation right now, but the potential added fees required for a high-definition signal will appear on your cable bill long after your tax refund check has vanished.

Remember a tax refund is your hard-earned money. If you put that cash to work for you today, you'll find yourself sleeping better tonight.

Heidi Clute, CFP® of Clute Wealth Management in South Burlington, VT and Plattsburgh, NY, an independent firm and registered investment advisor that provides strategic financial and investment planning for individuals and small businesses in the Champlain Valley region of New York and Vermont. Clute Wealth Management and LPL are separate entities.  The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations.

Securities offered through LPL Financial. Member FINRA/SIPC.