Five Tips for Spending Your Tax Refund

Getting a refund this year? Great! Below are five tips for making your money work for you.

1. Spend it!

Make President Bush happy and pump that cash back into the U.S. economy. Just make sure that you spend your money in a way that pays off. For instance, if you're overweight or out of shape, taking charge of your health by joining a gym can save you thousands of dollars in the long run. According to USA Today, obesity costs the United States about $118 billion annually. Many of those costs -- such as the cost of weight loss medications and doctor's visits -- come directly out of the patents' pockets. Furthermore, several studies have shown that overweight people are paid less than fit people. If you find yourself in this category, making the investment in your health could be the smartest financial decision you make all year.

2. Pay off credit card debt or reorganize your finances

Many taxpayers are using the refund to pay down (or off!) previous debts. According to MSN money, the average American carries approximately $8,000 in credit card debt, and over 40% of families spend more than they earn! In this economic climate, it's never to early or too late to take a clear look at your finances and start spending smarter. Sites like Get Rich Slowly and Wise Bread offer free information online for reducing debt and living within your budget.

3. Do something good for the world

Given the recent string of natural disasters in China, Burma and closer to home, many taxpayers may be motivated to give back this year. Just be sure to donate to a legitimate charity. According to the Guardian , hoax emails purporting to be from the Red Cross have been proliferating across the Internet. Would-be donors are taken to a false donation form which forms a front for a phishing scam. Try the USAID website for a guide to legitimate organizations providing global disaster relief.

4. Fund your 401K, IRA, or other retirement fund

According to Financial Times Press, putting $3,000 into an IRA will result in about $49,000 in 35 years. If your finances are in order, making an investment in the future may be the best choice you can make. With many types of account, you can receive tax benefits by reducing your current tax bracket.... maybe even enough to warrant another tax refund next year.

5. Start (or grow) an emergency fund

The number one mistake that many people make when trying to reduce debt is failing to start an emergency fund. Although it may seem to make sense to put all of the money into debt reduction, as soon as a crisis hits, many taxpayers may once again find themselves relying on credit to make ends meet. As a bonus, putting your emergency fund into a high-interest savings account like HBSC or ING Direct can let your money grow until that rainy day comes around. For more on starting an emergency fund, see the excellent guide here.