Soon retail stores across the country will start advertising great deals on all kinds of different consumer products in an effort to separate you from the check you are to receive as a result of the "Economic Stimulus Package" passed by Congress and signed into law by President Bush last month. The urge to act on the ads will make it even more difficult to decide what to do with the $600 to $1,200. My advice - as with all financial matters - is to go in with a plan.
Congress recently passed an "Economic Stimulus Package" which they feel will give the economy a boost. The total package, worth more than $168 billion, will reach more than 130 million households across the United States. The vast majority of the federal government expense will go to rebate checks: most individual taxpayers will receive $600 and married couples will receive $1,200 plus $300 for each child. In addition to the rebate - targeted at taxpayers below the incomes of $75,000 for individuals and $150,000 for couples - the package includes some other minor tax breaks for businesses.
Politicians in Washington, D.C. are hoping and the IRS is estimating that this election year giveaway will land in your mailbox starting in May, and that we'll all go on a spending spree buying up televisions, clothes, shoes and household items to stimulate the economy. Economists disagree on the effectiveness of this measure, but before you go thanking your Congressional leaders for the "free money" make sure you remember where that money comes from and make sure you save enough of it to pay your bills (and taxes) again next year, or even better, invest! Just because consumer spending is more than two-thirds of economic activity in the United States, that doesn't mean that extra spending is the best choice for you and your family.
So even before the check arrives, take a moment and let reality set in. Sit down with your budget, check book and a calculator to decide what should be done with the money. Develop your own stimulus package!
At the beginning of each year, my husband and I do a master budget review where we look at our goals from last year and evaluate our progress. When receiving an unexpected amount of money like this, it is a good time to revisit your master budget. Ask yourselves, "What can we do with this money that will help us on a long-term basis? Where can we get ahead?"
Use this opportunity to make your future a little more comfortable. Any debt that you can pay down or even pay off with this money will free up more money during the month. Other possible options to consider are paying off the balance on any credit cards, establishing (or putting more money into) an emergency fund, adding money to your retirement accounts, and saving for your children's college educations in a 529 Plan such as Learning Quest.
While thinking about your future financial status, don't forget about factoring the present into the plan. It's okay to take a little bit of money to go on a long-weekend vacation or splurge on a night out on the town. Just don't over-indulge and come home with nothing to show for it but an empty wallet and a mailbox full of bills!
