What To Do With The Fed Economic Stimulus Package Tax Rebate?

So the stock market is doing badly and there’s fear of recession. To combat our economic downturn, the Fed slashed interest rate by three-fourths of a percentage point, and the Congress hammered out a deal for a $150 billion in economic stimulus package.

What does this mean? According to the news, Americans taxpayer making at least $3,000 per year and as much as $75,000 for individuals, or $150,000 per married couple, would receive a tax rebate check from the government. So, the good news is there might be a check anywhere from $300 to $1,200 coming to your house sometime this summer. If you want more detail, my friend The Dough Roller also wrote about the Fed Economic Stimulus package, but with a slight political twist.

What does the government want you to do with this money? Spend it to stimulate the economy, of course! This is where I tell you, you don’t need to be the perfect consumer and spend this money to be patriotic. The worst thing you can do right now is pre-spend the money you are anticipating to get in a few months. This announcement should not encourage you to spend more.

What can you do with the tax rebate?

1. Pay off your high interest debt

If you are in debt, especially with high interest like credit card debt, this is the perfect opportunity for you to pay it down — did you know about debt snowflake and debt free revolution? This way, you are not only getting money from the government, you are also getting money from your credit card companies (in a sense that you don’t have to pay them interest).

2. Establish an emergency fund

You know that having an emergency fund is a good thing. Unfortunately, you could never save up a sizable one. Now s a great time to have as much as $1,200 deposited into your emergency fund account all at once.

3. Contribute to your retirement account

Okay, you’re not in debt and you already have an emergency fund established — congratulation! What else can you do with this tax rebate money? This year, the maximum IRA contribution increased from $4,000 to $5,000 making it harder for you to reach the maximum limit. But don’t worry. Now you can use the rebate money to fund you IRA.

Which is better, spend money to stimulate the economy or use it to improve your financial situation? You decide.

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18 Comments

CiaranFromChance
January 25, 2008, 7:17

Good advice Pinyo, especially the part about not pre-spending it.
Laura
January 25, 2008, 7:21

We’re paying down the car loan debt with the money.
Pinyo
January 25, 2008, 7:21

@Ciaran – thank you.
@Laura – that’s a great plan.
Debt Free Revolution
January 25, 2008, 7:31

Hey Pinyo…I was about to write the exact same post! Thanks for the link LOL Now off to write about something else…
Pinyo
January 25, 2008, 7:42

@DFR – Sorry I stole your thunder.
chris
January 25, 2008, 8:30

Hmmm, just wondering if like the last rebate they sent out a few years ago, the gov. will spend millions to notify each of us we are getting these checks and then spend the same amount again to mail out the checks? I certainly wish everyone who would get these checks would stick them away in some type of savings….however I know that won’t happen. There will be no big screen TV or fancy vacation taken here with our money. Ingdirect will be the recipient of our good fortune.
Mrs. Micah
January 25, 2008, 9:10

Like Laura—any money we get will go to the car.
Pinyo
January 25, 2008, 9:30

@Chris – I recall that. I thought that was unnecessary expense on their part. I wish they have a little forethought and bundle it with this year tax refund checks. It would certainly save them quite a bit of money.
Then again, it will probably cost them 100 times more just to change the existing process. Oh well.
@Mrs. Micah — good for you too.
Aaron Stroud
January 25, 2008, 9:40

Pinyo, paying down debt can “stimulate” the economy as well. When debt is repaid, lenders are free to re-invest their money (loan it) or buy stuff.
Unfortunately, “tax rebate” isn’t going to stimulate the economy, at least not in the way people think because the rebate isn’t being matched with a similar sized reduction in spending. We’re essentially consuming future tax dollars today.
So everyone should make sure to pay down their debt or invest the money because it will need to be repaid someday. (Economics prof. Russell Roberts has a much more eloquent explanation and it’s short too.)
Money Blue Book
January 25, 2008, 11:23

The economy and govt aren’t going to like this, but I have no plans on spending my check if I receive one. I’m saving it!
TC
January 25, 2008, 14:25

I think improving your own financial situation is the way to go. Most people bought clothing with the previous Bush rebate which is quite unfortunate.
I made a plan that if Americans spent less than $250 of the rebate we could end up with our economy in much better shape in the long run.
Free From Broke
January 25, 2008, 15:10

Know what’s interesting about spending to stimulate the economy? Spending money we didn’t have is one of the reasons the economy has problems. If so many people weren’t spending on homes with other people’s money we may all be better off. And the idea of spending to help just seems like a bad habit to teach.
And why not include the money in our tax returns this year? I plan on getting my refund before May so getting the money in my return would help me quicker.
My money will go into saving or IRA’s.
Dwight
January 25, 2008, 17:18

We are going to borrow money from China to spend on “stuff” made in China. A lot of good that will do for our economy.
Pinyo
January 27, 2008, 15:57

@Aaron – That’s another perspective — interesting thought.
“So everyone should make sure to pay down their debt or invest the money because it will need to be repaid someday.” — Excellent suggestion
@Raymond – Good for you!
@TC – I am with you 100%…empower your mind.
@Free From Broke – Amen.
@Dwight – We are borrowing money from China???
Ron@TheWisdomJournal
January 28, 2008, 6:34

I’ll be paying off debt.
People need to realize that the Senate has yet to pass the bill and that it will probably be August before the money arrives.
I have thought about opening an IRA for my kids, though. Maybe if I’ve got my debt already paid off, I just might do this instead. Send money to my 65 year old children! Hehehe! (They’re only 14, 13, and
The Trucker
January 30, 2008, 15:03

Our check if it comes, will also be put to good use paying down a debt. The thought they are relaying as to spending the money to stimulate the ecconomy is bizarre!The people who need the money the worst are being encouraged to go out and spend and go home in just as much debt, or even more. It could backfire if you ask me.
Heather
April 9, 2008, 12:42

We owe federal taxes this year so we will be using it to pay that off.
Roxie
June 2, 2008, 15:08

Or you can do what this guys is going…he’s going to spread the $$ out over the course of a year…
http://buck64aday.blogspot.com