After many frustrating hours spent slaving over your taxes, the pay-off has finally arrived. Amongst the junk mail and Pottery Barn catalogues, you find your tax refund.
Now comes the big question: Should you spend the money or save it? If you believe the noise coming out of Washington and Wall Street, it's your patriotic duty to run to the nearest mall and spend, spend, spend. Without more money from the American consumer, the economy could collapse.
Don't believe it. The fate of the American economy doesn't rest on your shoulders. However, the fate of your own personal economy could get a significant boost if you use your tax refund -- which average about $2,000 -- wisely.
So instead of blowing your refund check on something frivolous and fleeting, you could use it to begin shoring up your finances and give yourself the peace of mind that comes from knowing you have money in the bank -- or at least a smaller amount of debt.
Here are 10 ways to help your own personal economy.
- Pay off some of your credit card debt. The average American household owes $8,123 in credit card debt and pays a whooping 16 percent interest on that credit, according to credit tracker CardWeb.com. Pay off $2,000 of that debt, and you'll save $2,918 in interest over next 5 years.
- Start or beef up your emergency funds. You should try to keep at least three months living expenses in a short-term savings account, such as a money market or checking account.
- Open or add to an Individual Retirement Account. If your $2,000 earns 11 percent annually -- the historic stock market return -- it will grow to $45,785 in 30 years. When you consider that this amount of money could let you retire a year earlier, your might want reconsider your plan to spending the refund on a weekend trip to Mexico.
- If you're a part of the gay baby boom, start or add to a college education fund for your child (or, if you like being the favorite aunt or uncle, for a niece or nephew). A baby born this year can expect to shell out $220,000 for a private college or $110,000 at a public school in 2022, according to a study by the College Board, a nonprofit education organization that tracks the costs of higher education. With that kind of bill on the way, a kid needs all the help he or she can get.
- Invest in yourself. If you must spend the money, why not spend it on learning or polishing a skill by taking a foreign language course or a cooking class. If you're feeling really adventurous, you could take some classes to learn new skills that could help you land a better job.
- Add to the value of your home by buying new carpeting or getting a fresh paint job. Since houses typically are the best and biggest investment Americans make, spending money on improving your home could pay off big in the future.
- Improve your health. Buy a membership to a fitness club or purchase a bicycle and begin exercising. Along with carrying too much debt, Americans also carry too much weight. If you're not going to use your rebate to reduce your credit card bill, consider using it to reduce your waistline.
- Fix your car. When was the last time you took your car into the shop before it broke down? Save yourself the aggravation of having your vehicle die on the highway and get it tuned up today.
- Set up a gift fund. Use the rebate as a Christmas gift fund. The fund allows you to spend the money and get your holiday shopping out of the way at the same time.
- Give to charities. Even if your refund doesn't amount to much, it can still do a lot of good. To the hundreds of charities that work every day to make our communities better places, that money could change a person's life.
I can't tell you how many times I've heard people say, "If only I had a little extra money, I'd pay off this or fix that." Well, here's your chance.
Mark Helm is a personal finance writer and financial planner and can be reached at HelmFinancial@aol.com or 703-501-8531.