Only a week until my $600 tax rebate gets here. It's burning a hole in my pocket already. But what's really the best thing to do with it?
My e-mail in-basket is full of unsolicited advice from a variety of financial advisers, fund companies and other outfits.
Invest it! Spend it! Give it to charity! Pay off your credit-card debt! Take a vacation! Buy a savings bond! Everyone wants to get their hands on it.
For us ordinary folk, I think there are two correct approaches to the rebate dilemma. There's what you and I should do. Then there's what everybody else should do.
Everybody else should spend the money. Pouring billions of dollars into new computers, clothes and Christmas presents should stimulate the economy and help us out of this slump. At least that's the theory promoted by President Bush.
It sounds a little like perpetual motion to me: Tax cut becomes rebate, which is spent, which stimulates the economy, which generates tax revenues, which replace the tax cut. It could work, I guess. So I hope millions of Americans will spend their rebates as fast as they get them.
But you and I should weigh the alternatives. After all, $600 is really a pretty decent chunk of money to invest. Put it into a tax-favored account, such as an IRA, and it could grow quite handsomely.
After 20 years in a good stock fund, it would turn into more than $2,300, assuming a 7 percent annual return. With a 10 percent return, it would be about $4,000.
Then again, sensible people have been investing all along. If you're putting part of every paycheck in a 401(k), do you really have to tuck away every windfall, too? Shouldn't we just splurge every once in a while?
Yeah, why not?
The lousy stock market has a bearing here. While investing makes good financial sense, you don't get much fun out of it unless there's a sudden gain a big one. Also, this is a gloomy time. A new stereo or TV might be just the thing to help brighten the mood.
Of course, you could "invest" the money without the risk of loss that comes with stocks and bonds. Take a course that can help you get a new job or promotion. Or use the rebate to hire a financial planner. Maybe you'll find that early retirement remains possible despite the stock market's drubbing.
Right now, mortgages are at near-record lows. A tax rebate check won't go very far toward buying a new home, but it could pay a good chunk of the costs of refinancing. That's a sure-fire investment that can save you thousands in the long run.
Then again, why not be frivolous? How many ball games or movies can you go to for $600? A lot. Maybe you should just cash the check and hide an envelope full of twenties. Call it a cheer-us-up fund, to use as needed.
Life is short. I'm going to spend my rebate on something I don't really need. After all, that's the patriotic thing to do.