MONEY Taxes

11 Smart Ways to Use Your Tax Refund

Tax refund check with post-it saying "$$$ for Me"
Eleanor Ivins—Getty Images

You could pay down debt, travel, tend to your health, or shrink your mortgage, among many other ideas.

Here we are, in the thick of tax season. That means many mailboxes and bank accounts are receiving tax refunds. A tax refund can feel like a windfall, even though it’s really a portion of your earnings from the past year that the IRS has held for you, in case you owed it in taxes. Still, it’s a small or large wad of money that you suddenly have in your possession. Here are some ideas for how you might best spend it.

First, though, a tip: If you’re eager to spend your refund, but haven’t yet received it, you can click over to the IRS’s “Where’s My Refund?” site to track its progress through the IRS system. Now on to the suggestions for things to do with your tax refund:

Pay down debt: Paying down debt is a top-notch idea for how to spend your tax refund — even more so if you’re carrying high-interest rate debt, such as credit card debt. If you owe $10,000 and are being charged 25% annually, that can cost $2,500 in interest alone each year. Pay down that debt, and it’s like earning 25% on every dollar with which you reduce your balance. Happily, according to a recent survey by the National Retail Federation, 39% of taxpayers plan to spend their refund paying off debt.

Establish or bulk up an emergency fund: If you don’t have an emergency fund, or if it’s not yet able to cover your living expenses for three to nine months, put your tax refund into such a fund. You’ll thank yourself if you unexpectedly experience a job loss or health setback, or even a broken transmission.

Open or fund an IRA: You can make your retirement more comfy by plumping up your tax-advantaged retirement accounts, such as traditional or Roth IRAs. Better yet, you can still make contributions for the 2014 tax year — up until April 15. The maximum for 2014 and 2015 is $5,500 for most folks, and $6,500 for those 50 or older.

Add money to a Health Savings Account: Folks with high-deductible health insurance plans can make tax-deductible contributions to HSAs and pay for qualifying medical expenses with tax-free money. Individuals can sock away up to $3,350 in 2015, while the limit is $6,650 for families, plus an extra $1,000 for those 55 or older. Another option is a Flexible Spending Account (FSA), which has a lower maximum contribution of $2,550. There are a bunch of rules for both, so read up before signing up.

Visit a financial professional: You can give yourself a big gift by spending your tax refund on some professional financial services. For example, you might consult an estate-planning expert to get your will drawn up, along with powers of attorney, a living will, and an advance medical directive. If a trust makes sense for you, setting one up can eat up a chunk of a tax refund, too. A financial planner can be another great investment. Even if one costs you $1,000-$2,000, they might save or make you far more than that as they optimize your investment allocations and ensure you’re on track for a solid retirement.

Make an extra mortgage payment or two: By paying off a little more of your mortgage principle, you’ll end up paying less interest in the long run. Do so regularly, and you can lop years off of your mortgage, too.

Save it: You might simply park that money in the bank or a brokerage account, aiming to accumulate a big sum for a major purchase, such as a house, new car, college tuition, or even starting a business. Sums you’ll need within a few or as many as 10 years should not be in stocks, though — favor CDs or money market accounts for short-term savings.

Invest it: Long-term money in a brokerage account can serve you well, growing and helping secure your retirement. If you simply stick with an inexpensive, broad-market index fund such as the SPDR S&P 500 ETF, Vanguard Total Stock Market ETF, or Vanguard Total World Stock ETF, you might average as much as 10% annually over many years. A $3,000 tax refund that grows at 10% for 20 years will grow to more than $20,000 — a rather useful sum.

Give it away: If you’re lucky enough to be in good shape financially, consider giving some or all of your tax refund away. You can collect a nice tax deduction for doing so, too. Even if you’re not yet in the best financial shape, it’s good to remember that millions of people are in poverty and in desperate need of help.

Invest in yourself: You might also invest in yourself, perhaps by advancing your career potential via some coursework or a new certification. You might even learn enough to change careers entirely, to one you like more, or that might pay you more. You can also invest in yourself health-wise, perhaps by joining a gym, signing up for yoga classes, or hiring a personal trainer. If you’ve been putting off necessary dental work, a tax refund can come in handy for that, too.

Create wonderful memories: Studies have shown that experiences make us happier than possessions, so if your financial life is in order, and you can truly afford to spend your tax refund on pleasure, buy a great experience — such as travel. You don’t have to spend a fortune, either. A visit to Washington, D.C., for example, will get you to a host of enormous, free museums focused on art, history, science, and more. For more money, perhaps finally visit Paris, go on an African safari, or take a cruise through the fjords of Norway. If travel isn’t of interest, maybe take some dance or archery lessons, or enjoy a weekend of wine-tasting at a nearby location.

Don’t end up, months from now, wondering where your tax refund money has gone. Make a plan, and make the most of those funds, as they can do a lot for you. Remember, too, that you may be able to split your refund across several of the options above.

MONEY early retirement

5 Ways to Know If You’re on Track to Retire Early

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David Madison/Getty

More than any numerical calculation, your financial behaviors are a reliable indicator for early retirement.

Interested in retiring early? How do you know if you’re on track? The usual answer is a financial formula: A given amount of savings, plus some investment return, equals a certain lifestyle, for a certain number of years. It’s simple math. Or is it?

In fact, it’s extremely difficult to predict your financial trajectory far into the future. Numbers can be deceiving. How about a different approach? These five career and financial behaviors may be the best indicator for whether you’re on track to retire early.

Do you love your work?
It might seem ironic to begin a discussion of early retirement with whether or not you like your job. After all, isn’t the point of retirement to stop working? Yet, in my experience, the only way to create the value needed to acquire the assets to retire early is to be great at what you do. And it’s hard to be great at something if you don’t love it. How else will you be motivated to put in the hours required for learning, practice, and mastery? Even in retirement, you may not want to stop being productive. But you’ll have the opportunity to do it in your own way, on your own schedule.

Do you value your time more than things?
Another prerequisite for early financial independence is valuing your free time more than owning things. Many modern professionals could retire in their 50’s if they saved more of their income rather than spending it. But temptations abound, and the instant gratification of another purchase is easier to taste than freedom a decade hence.

Ask yourself whether the things in your life are worth the years of labor you trade for them. Expensive houses, cars, and vacations are big-ticket items that can drain away earnings. Taking on debt to pay for them compounds the problem. We all need some luxuries. But requiring the best in everything is a financial burden. Valuing your time more than things will keep you from that trap.

Are you saving at least 30% of your salary?
There are few absolutes in the early retirement equation. High earnings are nice. A frugal lifestyle is helpful. But, when you really dig into the math, what matters most is your savings rate—the amount of your earnings, as a percent, that you save instead of consuming. That single number captures all the relevant factors for financial independence: how much you make, spend, and invest. It’s the single most important numerical factor in whether you can retire early, and it’s independent of your salary.

If you save at the often-recommended rate of only 10%, it will be about 40 years before you can retire. But accelerating that process is possible. It all depends on your resources and motivation. I saved approximately one-third of my salary, plus bonuses, during the peak earning years. That allowed me to retire at age 50 If you’re able to save 50% of your earnings, you could retire in less than 15 years!

How do you achieve those high savings rates? Increase your earnings by self-improvement. Cultivate a healthy, low-cost lifestyle with free fun and a few carefully chosen luxuries. Max out retirement savings and get company matches.

Do you track your financial “vitals”?
Every early retiree that I know got there in part because they quantify and track things. Rocket science is not required: If you can make a list of numbers and add them, you have most of the math skills needed for early retirement. Here are three vital financial signs to watch:

  • Monthly expenses reflect your lifestyle back to you: Are your daily spending decisions taking you towards financial freedom, or further away?
  • Quarterly net worth tracks your progress to financial independence: Are you growing your assets, or digging yourself into debt?
  • Annual portfolio return measures your investing skill: Are you matching the broad market return? (That’s good enough for early retirement.) If not, try a low-cost, passive indexing approach.

Do you have a potentially profitable passion?
Here’s a secret about early retirement: Like much of life, it’s risky. If you need a perfectly predictable, secure existence, then keep your job. But most early retirees aren’t leaving their career to lie on the beach or play golf full time. Most of them are setting off to pursue other passions. And many of those pursuits have income potential. Whether it’s blogging, guiding, or volunteering at a nonprofit, anybody with extensive experience, who is serving others, will generate value. Oftentimes that winds up paying, which reduces the risk of early retirement.

More than any calculation, your financial behaviors are a reliable indicator for early retirement. I’ve just reviewed five important ones. With these behaviors in place, relax and enjoy the ride. Find happiness every day in meaningful work and prudent living. That will lead to financial freedom, on a schedule that is right for you.

Darrow Kirkpatrick is a software engineer and author who lived frugally, invested successfully, and retired in 2011 at age 50. He writes regularly about saving, investing and retiring on his blog CanIRetireYet.com.

For more help calculating your needs in retirement:
The One Retirement Question You Must Get Right
How to Figure Out Your Real Cost of Living in Retirement
4 Secrets of Financial Freedom

MONEY investing strategy

Most Americans Fail This Simple 3-Question Financial Quiz. Can You Pass It?

piggy bank with question marks on it
Peter Dazeley—Getty Images

These questions stump most Americans with college degrees.

Following are three questions. If you’ve been around the financial block a few times, you’ll probably find all of them easy to answer. Most Americans didn’t get them right, though, reflecting poor financial literacy. That’s a shame — because, unsurprisingly, the more you know about financial matters and money management, the better you can do at saving and investing, and the more comfortable your retirement will probably be.

Here are the questions — see if you know the answers.

  1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow? (A) More than $102. (B) Exactly $102. (C) Less than $102.
  2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account? (A) More than today. (B) Exactly the same. (C) Less than today.
  3. Please tell me whether this statement is true or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.

Did you get them all right? In case you’re not sure, the answers are, respectively, A, C, and False.

Surprising numbers

The questions originated about a decade ago, with Wharton business school professor and executive director of the Pension Research Council Olivia Mitchell, and George Washington School of Business professor and academic director of the Global Financial Literacy Excellence Center Annamaria Lusardi. In a quest to learn more about wealth inequality, they’ve been asking Americans and others these questions for years, while studying how the results correlate with factors such as retirement savings. The questions are designed to shed light on whether various populations “have the fundamental knowledge of finance needed to function as effective economic decision makers.”

They first surveyed Americans aged 50 and older and found that only half of them answered the first two questions correctly. Only a third got all three right. As they asked the same questions of the broader American population and people outside the U.S., too, the results were generally similar: “[W]e found widespread financial illiteracy even in relatively rich countries with well-developed financial markets such as Germany, the Netherlands, Switzerland, Sweden, Japan, Italy, France, Australia and New Zealand. Performance was markedly worse in Russia and Romania.”

If you think that better-educated folks would do well on the quiz, you’d be wrong. They do better, but even among Americans with college degrees, the majority (55.7%) didn’t get all three questions right (versus 81% for those with high school degrees). What Mitchell and Lusardi found was that those most likely to do well on the quiz were those who are affluent. They attribute a full third of America’s wealth inequality to “the financial-knowledge gap separating the well-to-do and the less so.”

This is consistent with other research, such as that of University of Massachusetts graduate student Joosuk Sebastian Chae, whose research has found that those with higher-than-average wealth accumulation exhibit advanced financial literacy levels.

The importance of financial literacy

This is all important stuff, because those who don’t understand basic financial concepts, such as how money grows, how inflation affects us, and how diversification can reduce risk, are likely to make suboptimal financial decisions throughout their lives, ending up with poorer results as they approach and enter retirement. Consider the inflation issue, for example: If you don’t appreciate how inflation shrinks the value of money over time, you might be thinking that your expected income stream in retirement, from Social Security and/or a pension, will be enough to live on. Factoring in inflation, though, you might understand that your expected $30,000 per year could have the purchasing power of only $14,000 in 25 years.

Mitchell and Lusardi note that financial knowledge is correlated with better results: “Our analysis of financial knowledge and investor performance showed that more knowledgeable individuals invest in more sophisticated assets, suggesting that they can expect to earn higher returns on their retirement savings accounts.” Thus, better financial literacy can help people avoid credit card debt, take advantage of refinancing opportunities, optimize Social Security benefits, avoid predatory lenders, avoid financial scams and those pushing poor investments, and plan and save for retirement.

Even if you got all three questions correct, you can probably improve your financial condition and ultimate performance by continuing to learn. Many of the most successful investors are known to be voracious readers, eager to keep learning even more.

MONEY Taxes

Nearly 7 Out of 10 Americans Will Use Their Tax Refund for the Same Thing

Take the poll below and tell us how you plan to use yours.

The majority of Americans will use their tax refunds to pay down debt in 2015, according to a survey conducted by the National Foundation for Credit Counseling.

Of the more than 1,000 respondents, 68% have their refund earmarked for debt repayment, with 15% using it for basic necessities and 11% using it to pad their savings accounts. Only 2% plan to use it as “fun money” for a vacation or shopping spree, and 4% still haven’t made up their minds about the best use for the cash.

According to the IRS, the average tax refund last year was $3,034. That’s a hefty chunk of change that, when combined with our debt repayment strategies, can help get you back in the black in you’re looking to get out of debt this year.

How will you use your refund? Let us know in the poll below.

Here are more ways to improve your financial fitness in 2015:
4 Ways to Hit Your Money Goals
3 Simple Steps to Get Out of Debt
4 Strategies for Powering Up Your Savings

 

MONEY

How Social Media Sites Are Making You Spend More

Pinterest on mobile phone
Anatolii Babii—Alamy

Social media provides the opportunity to connect with people and gain inspiration from them. It can also lead us to find many ways to break our budgets.

When I ran a Facebook ad recently for a nonprofit where I volunteer, I was surprised how specific you could get in targeting potential customers.

If I wanted to advertise the event I was promoting to women between the ages of 24 and 26 in my city who were unmarried and educated, who watched Girls, owned a dog and liked designer purses — I could do that.

Being able to target ads to a specific market can help a seller reach the people who want or need their products and services. Unfortunately, that means buyers may also be encouraged to spend more than they should if they’re not mindful.

There are many ways that we spend money or time that we didn’t before social media — ad targeting is just one of the potential spending traps we can fall into. We may also feel pressure to keep up with the social media images of our peers. Add to that the aspirational nature of sites like Pinterest, and it’s safe to say that one can encounter many budget-breaking temptations by spending time on social media.

Your Inspiration Station

Pinterest might be the perfect place to score a killer recipe for Pumpkin Cream Cheese Muffins or instructions for how to DIY a fabric headboard, but it is also the biggest tempter when it comes to making us spend. According to RichRelevance, an e-commerce consultant, Pinterest shoppers will spend an average of $170 per session whereas Facebook shoppers only spend $95 per session and Twitter shoppers spend just $70 per session.

So while some people use the site to find fun DIY projects that are cheap or repurpose other items, they might not necessarily be coming out ahead, either. The downside comes if they choose to spend money on projects they hadn’t budgeted for. So the key to keeping your inspiration – and aspirations – in check is to make a little room in your monthly budget for your projects… and then stick to it.

Keeping Up With the Joneses

Perhaps the most insidious ways social media influences our spending is through social pressure or suggestion. Did your friend just tweet, Instagram, Pin or share their delicious meal from that new brunch place? Now you’re craving those waffles and you have to go! Sure, a meal out here or there may not set you back too much. But what if your friends are sharing pictures of their new house, their kitchen renovation, or their new car – and you start to feel a nagging sense that you need those things, too? Things that break your budget, or aren’t even an item in your budget to begin with?

In the social media world, you aren’t just tempted to try to keep up with your neighbours or co-workers, but also the friends from high school you don’t see anymore, and the girl or guy you once met at a party. By expanding our networks, we expand our temptations… and maybe our sense of competition.

Viral Marketing

Another social medium luring us into the spend-more trap is viral content. Lately, I’m seeing more of my friends sharing funny article lists that are actually subtle ads for various products and how-to articles written by brands. Content marketing, a marketing strategy that uses videos and articles to reach consumers, has been growing as companies look for new ways to target potential shoppers and get them to share content online.

These subtle ads may persuade us to buy things we might not need or to spend more on a brand that we have a good association with. For example, I might decide to spend a few more dollars to buy a name product rather than a generic brand because I liked their viral video. This might not seem like a big deal given that it’s just a few dollars. But it can add up, especially if it’s something that involves a larger financial decision. For example, say you’re in the market to buy a car and a particularly charming viral video persuaded you to make a more expensive choice.

What You Can Do

If you’re trying to cut back on your spending, or just don’t want those pesky laser-targeted ads, consider opting out from ‘online behavioral’ and ‘interest-based’ advertisements by registering your IP address with the Digital Advertising Alliance. It won’t make the advertisements go away, but it will make them less tailored to you. And while there are some ways to block ads on social networking sites, it’s ultimately better to be aware of the larger issue: There will always be ads, as will the temptation to spend beyond your means.

It’s during these times that you need to remember to ask yourself:

  • Is this a want or a need?
  • Do I have it in my budget to spend on this?
  • Can I plan for this expense by creating a savings goal?
  • Is there a better way to spend this money (say, paying down your credit card debt)?

Staying conscious of your financial goals can help you overcome the urge to one-up your friends and followers. In fact, if you need a different kind of motivation, consider joining other social media groups focused on saving and paying down debt. Also start checking your credit regularly to see how much your debt is costing you. You can get a free credit report summary updated monthly on Credit.com, so you can keep an eye on a major factor of your financial health.

More from Credit.com

This article originally appeared on Credit.com.

MONEY credit cards

Check Out the Insane Rewards Offered by this New Credit Card

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Rudyanto Wijaya/iStock

You can get 3% cash on everything you buy, at least for the first year.

We don’t get too excited about new credit cards around these parts. So the fact that I’ve personally already signed up for Discover it Miles should tell you something about this card.

The new addition to Discover’s “it” platform, announced late last month, is geared toward consumers who want to earn travel rewards without having to participate in specific airline loyalty programs. To that end, it’s joining into a competitive pool that already includes the Capital One Venture, the Barclaycard Arrival Plus World Elite and others.

Discover it Miles rewards program is unusually generous, but not in the way it’s marketed. According to my analysis, this travel rewards card can actually provide the best cash back value of any card on the market. At least for a year.

What “it” Offers

Discover it Miles is positioned in the non-branded travel rewards credit card space. That means that rather than earning miles for, say, United or American’s loyalty programs, customers instead rack up miles on their card that they can then transfer as a statement credit for travel purchases.

Such cards typically offer better value for your charging dollar, since airline programs have been devaluing miles and making it harder to redeem for tickets.

With Discover it Miles, cardholders earn 1.5 miles for every dollar spent, no cap. Every mile earned is worth one penny, so $10,000 spent equates to $100 in rewards.

Most travel cards offer some kind of signup bonus as an incentive. For example, if you spend $3,000 in three months on the Capital One Venture, you’ll receive 40,000 miles.

But Discover it Miles doesn’t do this. Instead, the card doubles all of the miles you’ve earned at the end of the first 12 months. So $10,000 in spending translates to 30,000 miles, or $300, after a year.

Other perks include no annual fee, no foreign transaction fee, and up to $30 in credit for in-flight Wi-Fi charges. Discover also waives late-fee charges on your first missed payment.

How “it” Compares as a Travel Card

To be fair, the Discover it Miles offers better terms than other no-fee travel cards.

But if you’re someone who spends at least $475 a year, and you’re looking for travel rewards, you’re generally better off going with Barclaycard World Arrival Plus Elite, one of MONEY’s Best Credit Cards.

While Barclaycard holders endure an $89 annual fee after the first year, they also receive a 40,000 signup bonus, two miles for every dollar spent, and a 10% rebate when miles are used for a travel credit. The signup bonus alone is worth $440 if used for travel purchases.

So $10,000 spent on the Barclaycard would net you 60,000 miles (including the signup bonus), which equates to $600 off on travel statement credits. Throw in the 10% rebate, and you’re looking at $660 for that first year. That’s far more than what you can get by using the it Miles as a travel card.

How “It” Compares as a Cash Card

But you shouldn’t think of Discover’s new card as a travel-rewards product. Think of it instead as a cash-back card that nets you 3% (!) on all purchases for the first year.

How? Besides letting you redeem the miles on your statements for travel purchases, the Discover it Miles lets you claim them as a direct deposit into your bank account. So if you accrue 30,000 miles, you get $300 or 3%.

This is a major boon for consumers looking for cash back. Right now, the highest flat-rate uncapped rewards comes from the likes of Citi Double Cash and Fidelity Investment Rewards American Express Card, which offer 2% for all purchases. The Discover it Miles is a full percentage point better.

That’s a big deal. For $10,000 in spending, the Discover it Miles earns you $300 vs. $200 for the 2% cash back cards.

There are mutual funds on our MONEY 50 list that haven’t returned 3% over the past year!

The doubling miles feature is only good for the first year, so the card is less valuable than other products after the first 12 months. After that, you’d be better off using Citi Double Cash. But since there’s no annual fee on the Discover It Miles, there’s no harm in getting the card, using it as your primary for a year, then holding onto it.

You might actually see your credit score improve, especially if you keep your spending at the same level: A lower credit-utilization ratio is a major plus in the FICO scoring formula.

More from Money.com:

5 Things You Didn’t Know About Using Personal Email at Work

How I Made $100,000 Teaching Online

10 Smart Ways to Boost Your Investment Results

MONEY financial skills

Who’s Worst With Money: Baby Boomers, Gen X or Millennials?

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Alamy

Older and younger generations alike face financial challenges, but they share different concerns.

A new report confirms what we all fear to be true: Americans, no matter their age, are generally terrible at managing their money. In short, we all need to save more. A lot more.

This insight comes from Financial Finesse, a think tank geared toward helping people reach financial independence and security, in its 2015 generational research study released today. Financial Finesse’s assessment of each generation’s financial health is based on employee responses to its financial wellness questionnaires, which is used at more than 600 companies in the country.

In this study, generations are broken into millennials (employees younger than 30), Generation X (30 to 54) and baby boomers (55 and older). Based on what people reported about their financial situations, no group gets bragging rights or much room to criticize their older or younger counterparts. As for how they scored, it’s pretty even: On a scale of 0-10 millennials got a 4.6 for financial wellness, Gen X a 4.7 and boomers a 5.7.

Millennials

The youngest segment of the workforce seems to do pretty well with the in-the-moment financial decisions. Essentially, these consumers were scarred by the debt problems they saw in the recession, and they’re more likely to spend within their means, have plans to pay off debt, pay their credit card balances in full and avoid bank fees than Gen Xers.

Despite being in the best position to prepare for retirement (the earlier you save, the easier it is to reach your goals), millennials listed it as their third most important priority, after paying off debt and managing cash flow. The other generations had retirement planning at the top.

The debt issue is really what sets millennials apart. More of their income goes toward student loan payments than it did for other generations when they were younger, and those payments may be cutting into savings potential. The lifetime cost of debt calculator shows how even low-interest debt can impact your savings.

Generation X

Gen Xers have a higher median income than millennials, but they have a harder time managing the bills. This report attributes that to having so much going on, with managing their own finances, supporting children and caring for aging parents taking up a lot of time and resources. At the same time, the report identifies this generation as focused on improving their credit, despite the trouble they have paying bills on time and spending within their limits. (You can see your credit scores for free every month on Credit.com.)

With so many demands on their finances, Gen Xers generally don’t have enough savings to fall back on, sometimes leading them to take money from retirement funds in a pinch. With each passing year, it gets harder to catch up on retirement savings, which could really hurt Gen Xers as they near the end of their careers.

Baby Boomers

With insufficient retirement savings threatening the financial stability of many older Americans, boomers need to focus on analyzing their investments and adjusting their living standards to meet their resources. There’s not much time to make up for poor retirement saving earlier in life, so boomers may have to re-evaluate one of the few things they can really control: Their expectations.

We’re not all doomed for financial ruin, but this report highlights something that cannot be emphasized enough: Setting long-term goals and sticking to plans for meeting them should dominate your financial planning. Do it your own way — there are many effective approaches to balanced money management — but don’t dismiss the importance of planning ahead.

More from Credit.com

This article originally appeared on Credit.com.

MONEY Savings

4 Surefire Strategies for Powering Up Your Savings

piggy banks of assorted colors on wood surface
Andy Roberts—Getty Images

You can't count on high investment returns forever. Take control of your future with these savings tips.

Welcome to Day 7 of MONEY’s 10-day Financial Fitness program. You’ve already seen what shape you’re in, figured out what’ll help you stick to your goals, and trimmed the fat from your budget. Today, put that cash to work.

It’s been a great ride. But the bull market that pumped up your 401(k) over the past six years won’t last forever. Even though the stock market is up so far this year, Wall Street prognosticators expect rising interest rates to keep a lid on big gains in 2015. Deutsche Bank, for example, is forecasting a roughly 4% rise in the S&P 500, far below last year’s 11% increase.

Over the next decade, stocks should gain an annualized 7%, while bonds will average 2.5%, according to the latest outlook from Vanguard, the firm’s most subdued projections since 2006.

While you can’t outmuscle the market, you do have one power move at your disposal: ramp up savings.

1. Find Your Saving Target

So how much should you sock away? This year Wade Pfau of the American College launched Retirement-Researcher.com, a site that tests how different savings strategies fare in current economic conditions. He found that households earning $80,000 or more must save 15% of earnings to live a similar lifestyle in their post-work years. While that assumes you’re saving consistently by 35 and retiring at 65, it does include your employer match, so in reality, you may be pitching in only 10% or so.

If you weren’t so on top of it by 35, you have a couple of options: Raise your annual number (Pfau puts it at 23% if you start at age 40) or catch up by saving in bursts. Research firm Hearts & Wallets found that people who boosted savings for an eight-to 10-year period (when mortgages or other big expenses fell away) were able to get back on track for retirement.

2. Think Income

New data show that people save more when they see how their retirement savings translates into monthly income, says Bob Reynolds, head of Putnam Investments. The company found that 75% of people who used its lifetime income analysis tool boosted their savings rate by an average of 25%. To see what your post-work payments will look like, check out Putnam’s calculator (you must be a client to use it) or try the one offered by T. Rowe Price.

3. Take Advantage of Windfalls

Don’t let all your “found money” get sucked into your checking account. Instead, make a point to squirrel away at least a portion of bonuses, savings from cheap gas, FSA reimbursements, and tax refunds. Eight in 10 people get an average refund of $2,800; use it to fund your IRA by the April 15 deadline, says Christine Benz of Morningstar.

4. Free Up Cash

Interest rates remain low. If you’re a refi candidate, you may be able to unlock some money that could be better used. Tom Mingone of Capital Management Group of New York suggests using your refi to pay off higher-rate debt. Say you took a PLUS loan (now fixed at 7.21%, though many borrowers are paying more) for your kid’s tuition: Pay that down.

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MONEY Gas

Here’s What Americans Are Doing With the Gas Money They’re Saving

Gas nozzle and money
Tim McCaig—Getty Images

The government's Energy Information Administration estimates the average household will spend $750 less on gas this year. So where's that money going?

Americans are enjoying a nice raise at the moment, in the form of dramatically lower gas prices. The government’s Energy Information Administration estimates that the average household will spend $750 less on gas this year, which is like getting a roughly $1,000 raise, since the savings aren’t taxed. For a little perspective, the 2008 economic stimulus package passed by Congress designed to save America from the worst of the recession sent a maximum of $600 to American households.

The gas price drop means even more to struggling lower-income earners: the bottom fifth of earners spend 13% of their income on gas.

That’s the good news. The bad news? Retailers aren’t seeing much, if any, of that money.

Americans spent $6.7 billion less on gas in January than November, but retail spending actually fell slightly during that span. That means lower gas prices are not acting as a surprise stimulus plan for the economy.

So where is the money going? To the bank.

The Federal Reserve Bank of St. Louis recently reported that Americans’ notoriously low personal savings rate spiked in December, to 4.9%, from 4.3% the previous month. The cash that’s not going into the gas tank is going into savings and checking accounts instead.

Few Americans save enough money, and many have insufficient rainy-day funds. With the recession fresh in their minds, many Americans appear to be more concerned with restoring their severely damaged net worth than buying stuff.

But Logan Mohtashami, a market observer and mortgage analyst, suspects something else might be at play.

“People don’t think the gas price (drop) is a long-term reality,” Mohtashami said. Despite government predictions to the contrary, he says, consumers aren’t adjusting their spending to a new normal, and instead they’re holding onto their cash for the next rise in prices.

Again, that kind of pessimism is sensible, and it’s good for personal bank accounts, but it’s not so good for growing the economy.

How much are you saving thanks to lower gas prices? What are you doing with the “raise?” saving or paying down debt? Planning a better vacation? Driving a gas-guzzler more often? Let me know in the comments, or email me at bob@credit.com.

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This article originally appeared on Credit.com.

MONEY Budgeting

How to Start Tracking Your Spending in 7 Minutes Flat

stopwatch with money/dollar on it
George Diebold—Getty Images

If you want to save more or get out of debt, knowing where your money goes now is an essential first step.

As part of our 10-day series on Total Financial Fitness, we’ve developed six quick workouts, inspired by the popular exercise plan that takes just seven minutes a day. Each will help kick your finances into shape in no time at all. Today: The 7-Minute Spending Tracker

Seven minutes is a little tight to create a budget, but it’s enough to tackle the first step: pulling together all your spending info using a budgeting tool such as Mint. You’ll need your credit and debit cards to get started.

0:00 Surf to Mint.com and register for a free account.

0:42 Mint asks for your credit card providers and bank. As you type in each one, a list of possible matches will pop up. Select the right one and enter the online login and password you use for that account. (Mint is a secure site and cannot get to your money.)

3:02 Mint will need a minute to pull in all of your transactions, which it automatically slots into categories like “Cellphone” and “Groceries.” Problem is, the app doesn’t always get it right. To fix that, click the “Transactions” tab.

3:34 See those “uncategorized” charges? You can select them to choose a correct label. This is pretty tedious, so tick the box that says “always re-categorize X as Y.” That way, Mint will put all future transactions from that retailer in the right place.

5:02 When you did that, you probably also noticed some charges Mint tried to identify but placed into the wrong bucket. Scroll through those and correct them the same way.

6:30 Grab your phone and download the Mint app. Having the program handy will help you keep on top of charges.

7:00 Now you’re ready to click the “Budgets” tab and create a spending plan. For more help with that, check out our Money 101 stories on creating a budget you can stick to and setting financial priorities.

Previous:

Next:

  • Day 6: Cut the Fat From Your Budget
  • Day 7: Find Ways to Save More
  • Day 8: Boost Your Earning Power
  • Day 9: Learn How Better Health Can Help Your Finances
  • Day 10: Shore Up Your Safety Net

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