I’ll assume that many of you will be receiving an income tax refund and/or a stimulus check. Here are some suggestions for what to do with those checks –
1. Emergency Fund – I like to maintain an emergency fund equal to $500 per person in our family. We have 4 people, right now, soon to be 5, so our emergency fund equals $2500. If you don’t have an emergency fund, use your check(s) to fund one.
2. Debt Reduction – If you have your emergency fund, but you still have non-mortgage debt, consider depositing your check and then sending a ‘big splash’ payment to one (or more) or your creditors. Depending on your debt reduction technique, you’ll send your extra payment to the account with the lowest balance or the account with the highest interest.
3. Roth IRA – Have you started saving for retirement? For 2008, the per person contribution limit for Roth IRAs (in most cases) is $5000.
4. Emergency Fund (2) – If you are out of debt, now would be a good time to really build up your emergency fund. I like to have enough money in my emergency fund to cover six months’ worth of expenses. Depositing that check could go a long ways towards funding your Emergency Fund.
5. Automobile Repairs/Maintenance – If you are trying to avoid borrowing money to purchase newer automobiles, you might consider using your refund or stimulus check to repair or maintain your automobile. I am going to use a portion of my stimulus check to buy new tires for my paid-for Honda.
6. Fun – If it’s been a while since you went out to eat or bought an new outfit, live a little. Personally, I wouldn’t spend every dollar of my check on ‘fun stuff’, but I’ll probably use a small portion of our stimulus check to buy some new golf balls and a new pair of running shoes.
7. College Savings – We have two kids, and a third on the way, and we are saving for their future college expenses. Take a look at ESAs and 529 plans and consider funding one or both.
Final notes – If you are getting back a sizable income tax refund, you might want to check your withholding. Remember, the money you are ‘receiving’ is actually your money! There is no real sense in loaning Uncle Sam your money, interest free, for a year. Also, please don’t use your refund / stimulus check as down payment for some item that you can’t afford. Don’t turn a blessing into a curse. Use the money wisely and you’ll be happy with your decision.
We are putting 100% of the money toward our emergency fund. It makes me sad to think how many HDTV may be sold because of “free” government money, but who am I to judge?
Seeing as the government would like for us to really use this “stimulus” on goods and services so that we may raise the overall Gross Domestic Product, I would suggest that a whole lot of you spend it, kinda like in option
6. Fun – If it’s been a while since you went out to eat or bought an new outfit, live a little.
As for me, I’ll hold on to it and put it away for as emergency fund. I’m a student; if I could spend the package, I would… or perhaps more importantly save it and earn interest on it. 😀
I don’t think planning what you are going to do with _your_ stimulus check is the right way to think about it. Instead, think about what you’re going to do with other people’s stimulus checks. 🙂
For example, prepare to sell that old motorcycle you’ve had in the basement, or use ebay to rid yourself of all that extra junk that’s been gathering dust. Other folks will be feeling flush, if for only a short time, when their checks arrive. Don’t miss this opportunity to use that to your advantage.
@Mr. Stupid – that’s actually very, very smart!
I was fully planning to just stick mine in savings for a rainy day but the more I think about it the raining day might come the day I get the check. I’m really wanting a small LCD TV…we’ll see if I can hold out or not.
To “No Debt Plan” actually you SHOULD be judging because that money is not government money – its deficit spending, IE YOU and your children and their children are paying for stranger A’s big screen TV.
We’re loading up the emergency fund. Nice summary of ideas here.
Finally: “I going to do as the government asks and spend it on frivolous items I don’t need.”
Amen, and really, its not going to help the economy that much even if you DO spend it. Its sort of akin to handing a starving village a bag of rice to gorge on. They are better for a day, but after that, its back to starving…and one step further, the rice is from their own emergency store and they have to pay interest on it.
I am buying new tires and saving the rest. My hubby is saving 80% and buying a vacuum. I think many people will buy more! People at work were talking about how if you spend it on food or household furniture it is going overseas. On NPR they had a april fools saying that the goverment was insead going to give you an A/C if you lived in the south and a snowblower if you live in the north:)