4 smart ways to spend your 2016 tax refund (and 3 dumb ways)

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4 smart ways to spend your 2016 tax refund (and 3 dumb ways)

Nearly 80% of Americans will receive a tax refund this season, with the average refund hovering around $2,800. "Holy smokes!" you might think. "I’m going to spend all this money doing something really, really smart."

Unfortunately, not everyone’s idea of "smart" is the same. That’s why we put together this list of four really smart ideas of what to spend your refund money on, as well as three really bad ideas. We rated each of them with our own patented "Smart score," a specially formulated score that we worked on for years in our basement. See if you can tell which is which!

Protect your family with life insurance

Your salary has a lot of jobs. Firstly, it has to provide for your family. That means everything from groceries to toys to the electric bill. It also has to fund college plans and retirement plans. Somewhere in there, it has to pay the mortgage, too.

What happens if this salary goes away? If you die prematurely, your salary goes with you, and suddenly, all of those well-laid plans are missing a key component.

Enter life insurance, stage left. Life insurance is designed to protect your family financially in case you die before your time. It can provide a tax-free lump sum to your family, which they can use to pay for college, the mortgage, and day-to-day expenses.

The best part? It won't even take up a lot of your tax refund. A healthy male in his thirties can get half a million bucks in life insurance coverage for just $20.

Smart score: Three Einsteins discussing relativity over tea.

Buy Apple Watches for the whole family

What's a product that you kind of want but absolutely don't need at all? An Apple Watch, of course! And now, thanks the power of low sales, they're cheaper than ever. You can get one for yourself for just $300 ($350 if you have a bigger wrist).

But really, shouldn't the whole family have one? I mean, what better way to take advantage of the Apple Watch's innovative new Digital Touch communication features? Who will you share your heartbeat with if your spouse or parents or kids or dogs don't also have an Apple Watch?

All in all, you can get eight Apple Watch Sports (42mm) for just under $2,800, which, conveniently enough, is the exact same amount as the check you just received from the IRS. Funny how that all works out, huh?

Smart score: A movie marathon comprised only of Nicolas Cage films.

Save enough to enjoy retirement

Want to use your tax refund to both fund your retirement and save you taxes in the future? Let’s assume you said yes because that sounds like a pretty sweet deal.

You can contribute up to $5,500 tax deductible dollars to your Individual Retirement Account (or IRA) every year. For someone in the 25% tax bracket, contributing the full amount can lower their tax liability by $1,375.

While you should be planning out your retirement contributions monthly instead of in large, unpredictable bursts, using your tax refund to kickstart a retirement fund is a great way to use the extra income.

Smart score: An owl wearing a graduation cap and gown and holding a college degree.

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Hire an Uber driver to be your personal chauffeur

When you’re driving, you wish you could be doing other things: reading emails, playing video games, sending your heartbeat to your cat’s Apple Watch. So it seemed like a good idea when you hired an Uber driver to be your personal chauffeur.

Unfortunately, having an Uber driver on retainer turned out to be a lot more expensive than you thought. First, he wanted you to pay for his car insurance, and there was no reason he needed to start charging surge pricing on your way home from work.

You ran of out of refund money long ago, but you just can’t muster up the strength to fire him. You’ve sold the house and the Apple Watch and are now living in the back of that Uber. You’ve had him driving for days. If he doesn’t stop, you don’t have to pay, right? Right?

Smart score: Covering your naked torso in pollen and walking into a bee farm just as the bees are waking up from winter.

Set money aside for your kids’ college education

One of the best ways to save for a college education is a 529 college savings plan. Much like an IRA, 529 college savings plans let you put money aside and have it grow in relatively safe investments in mutual funds. When your child is college-aged, you can take money out tax-free to spend on educational expenses. You can contribute up to $14,000 per year, (or $28,000 if you’re married) so you can probably throw your entire refund check in there. Your kids will thank you.

Smart score: Bringing a raincoat "just in case."

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Start an Etsy business selling finger puppets made of cat hair

When you found the book, you laughed. "Crafting with Cat Hair? My gosh, Carol, just look at this." And you and Carol laughed together. Imagine: someone so lonely, so obsessed with their cat, that they take their cat’s leftover hair and turn it into a finger puppet. What would you even do with those finger puppets? Would you also take leftover wood and make a little stage for them? Maybe take some extra red fabric and make a curtain? You wonder if you can find lightbulbs small enough to fit in tiny little light sockets. You imagine the plays you would put on with your cat hair finger puppets. You imagine your cats watching attentively. You imagine them laughing and crying at the right parts. You imagine their little kitty applause at the end.

When you get home, the book is in your purse. You don’t remember putting it there.

Smart score: Twelve.

Adjust your withholdings

Okay, so this isn’t something you can actually do with the money, but it will help you out for the next year. Ideally, the federal government shouldn’t be giving you a huge refund at the end of the year. That’s income that you could’ve been using every month. Use the IRS Withholding Calculator to help figure out how you should adjust your W-4 form to best match your tax liability.

And since you need something to do with the money, may we suggest life insurance?

Smart score: Replacing Eric Stoltz with Michael J. Fox for the lead role in Back to the Future.