Fight the urge to splurge and put that tax refund check to a good, responsible use

There's still more than three weeks until Tax Day, but it's not too early to start figuring out what to do with whatever refund you might be getting.

Last year, the Internal Revenue Service handed refunds back to 96.7 million taxpayers -- including 3.9 million in Michigan -- with the check averaging $2,683.

So, what to do with the dough you gave to the government that the government is now giving back to you. Big-screen TV? Down payment on a new car? Mid-winter vacation?

Well, as much as I hate to do this, I have to put on my Money Nanny hat, the one with the piggy bank, coin jar and wagging finger. I don't want to sound like one of those financial scolds, but common sense dictates that you make a realistic assessment of your family finances and avoid the temptation of heading out on a refund-fueled spending spree. So, answer these simple questions, in order:

1. Are you in trouble? If you're having real trouble making ends meet, use this rare lump sum to dig out of the hole. If you're behind on a credit account or other bill, consider making a settlement offer, where you resolve the debt for less than the amount owed. Some creditors would rather get a chunk of what you owe now rather than wait for a series of payments that might not come if your situation gets worse. If you're savvy, call and see what you can arrange; otherwise meet with a certified credit counselor and ask them to negotiate on your behalf.

If you're really in trouble, maybe this money should be used to hire a bankruptcy attorney. You don't want to waste this opportunity of having a goodly amount of hard cash on hand by making a temporary small dent in your debt, then go right back to swimming in red ink. Going broke, it turns out, costs money, and it makes no sense to use your refund to eke out a few more payments if it means you'll then face bankruptcy without enough cash to hire a lawyer.

You can find an accredited nonprofit counseling group at http://www.NFCC.org">www.NFCC.org, or call the National Foundation for Credit Counseling at (800) 388-2227 (if you're more comfortable with Spanish, (800) 682-9832). To find a bankruptcy lawyer, start with the Detroit Metropolitan Bar Association at (313) 961-3545 or detroitlawyer.org. Note that an initial consultation with an attorney isn't necessarily free, so find out what any charge will be up front.

2. Are you headed into trouble? Two words: emergency fund. Is yours equal to three months worth of living expenses? If it is, that's the minimum these days. If your job looks shaky (hint: you live in Michigan; the only place shakier these days is in Chile) then you need more.

Some experts advise shooting for eight months of expenses and another warns that if you haven't got at least $20,000, you haven't got enough. If you want to argue, note that, with all the federal extensions of benefits, some of our formerly well-employed neighbors have received 99 weeks of unemployment assistance -- nearly two years. So, what was that you were saying about your emergency fund?

Establishing an emergency fund means your refund check goes into an interest-bearing account, such as a money market separate from your daily checking. No stocks, no bonds, no whining about the low interest rates at the bank. You want your rainy day fund in an insured bank or credit union, not your brother-in-law's start-up cupcake bakery. Also, don't pay down debt until you have a good-sized emergency fund established. In a financial crisis you can put off your creditors, but you can't put off feeding your kids.

Finally, once your fund is set up, please remember that "emergency" never refers to anything involving resorts, Disney World, plasma screens, Xboxes, back-to-school expenses, items purchased at Nordstrom (I don't care that it's your size and 70 percent off!) or activities that involve candy canes, eggnog or dreidels.

3. Are you free and clear? So you're not in trouble and your emergency fund is set up. Good. Other than your mortgage, have you got debt?

If so, follow these steps: Apply refund to highest-rate account. Watch balance shrink. Feel chest lighten. Gratefully renew newspaper subscription.

4. No kidding -- you are? Good for you, but don't get carried away thinking you're some kind of financial genius. The average homeless person doesn't have debt, either.

Check your retirement savings, college fund and other long-term goals to see if you can jump-start one of them with your refund. Stocks are up from their lows of the last two years, but still well off the highs of 2007, so there's still room for an eventual upside. If you've taken a loss in your portfolio, one way to boost future returns is with more money in the market, instead of making riskier investment choices.

5. Are you stupid? If the rest of your finances are under control or steadily getting there, why are you giving Uncle Sam an interest-free loan for 15 months at a time? Get your most recent tax return and your paycheck, click on over to the IRS.gov Web site and use the handy withholding calculator to figure out just how much of each paycheck you should be giving up.

Yes, I know, over-withholding is a government-backed forced savings account for some folks, but it's a dangerous one. The first reason is that the money is stuck at the Treasury Department if you run into trouble and need to get your paws on the cash now.

Second, instead of saving for a goal in a disciplined manner, you're mentally spending this money all year long. You put the vacation on Visa because you'll pay it off with the tax refund. Then you put the new kitchen on MasterCard because, hey, refund's coming. Then the Christmas blowout goes on plastic, too, but don't worry ... refund.

Now that refund is covering everything from last week's dinner to next year's Cinco de Mayo party. When your refund comes, it can't possibly stretch as far as you've imagined, leaving you in trouble. And if your tax situation changes and it doesn't come, you're in even deeper.

We're all big boys and girls, so make a budget that accounts for every dollar of your income and put it toward your most important goals. If you need to save for vacations, remodeling, curling equipment or other big-ticket items, set up a separate savings account and have the money automatically taken out -- just like the government does.

6. Ready for some fun? I firmly believe that part of any windfall should be used to celebrate your good fortune and reinforce the notion that there will be more where that money came from.

Don't go crazy, but do something proportional to the size of your refund and the depth of your financial challenges. A new pair of fancy shoes, a facial, a sophisticated date night, a new fishing rod. The cash for clunkers program for appliances is running, so maybe a new dishwasher.

If nothing else, get a good bottle of wine and drink two toasts: The first to your good luck now, and the second to your good future.

boconnor@detnews.com">boconnor@detnews.com (313) 222-2145