How to Use Your Economic Stimulus Check
By Patrick on Feb 18, 2008 in Taxes
Last week I wrote about the economic stimulus package that will affect many Americans this year. For many adults, the rebate will be up to $600 each, plus the possibility of more if you have children. These rates are based on Adjusted Gross Income and other factors, so be sure check before assuming your return. Here is a tax rebate calculator to help determine if you will receive a rebate, and how much you will receive.
Now that you have an idea of what your rebate will be, you have to decide how you will spend it, if you spend it at all. There is an ongoing poll on this site, regarding how readers plan on spending their rebate checks. It is located in the right column.
The results pretty much break everyone into two categories: Those who plan on using it to save or invest, or those who will use it to repay debt. I think that has more to do with the nature of this site’s readers than anything else!
Here are a few ideas on how you can use your tax rebate:
Save or invest - This is what my wife and I plan on doing with our rebate check. We plan on maxing out our Roth IRAs sometime soon, and we have a few other savings goals this year. This probably isn’t the most fun option available (50″ flatscreen TV anyone?!), but it is probably the most responsible for our situation. I know we will thank ourselves in years to come. 
Reduce debt - In my opinion, you can never go wrong by paying debt early. $600 is a huge chunk of change to throw at a debt, and if you are part of a family that gets more than $600, you may be able to make a very large dent in your debt payments. Hopefully this will help you free up some extra money every month to use for more important things than making interest payments to someone else.
Improve your life - Improving your life can be as simple as buying a few self-improvement books, or taking a class at the local community college. It could also mean buying something that makes your life easier or more enjoyable.
Have some fun - Enjoy life! Go buy that big ticket item you’ve wanted for awhile - that big screen TV, or maybe a new computer. Maybe take a vacation, buy a pool table, or do something memorable.
A little of everything - Many people with families will receive a few thousand dollars. For them, it might make sense to use some for debt repayment, boost their emergency fund with another portion, and invest the rest of it. Or they can do any combination of the above - save, invest, reduce debt, or spend.
There is no right or wrong answer
This money is a one-time bonus for you, so use it in a way that will be meaningful for you. There is no text book answer to which of these options is best because each person has a different situation. Just do what is best for your personal situation, and don’t worry about anyone else. 
For more information, check out the Economic Stimulus Package Frequently Asked Questions.
Update: The economic stimulus checks will be sent out a week early.
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27 Comment(s)
By Randall at CreditWithdrawal on Feb 18, 2008 | Reply
Since this looks like a pre-rebate, rather than a grant/gift, I’m planning on funding the IRA. That way the government can loan ME money for a change.
By Patrick on Feb 18, 2008 | Reply
You can never go wrong funding a Roth IRA! Those are quite possibly my favorite investment vehicle. And if you don’t qualify for the Roth, the Traditional IRA is still a great way to go.
By Ron@TheWisdomJournal on Feb 18, 2008 | Reply
Mine is already spent…on debt reduction. I think we’ll have our main credit card paid off by then, so we’re attacking our vehicle loan after that. That one will free up the most monthly cash to attack others.
By Patrick on Feb 18, 2008 | Reply
Ron, it sounds like you’ve got a good plan going. I like how your goal is to kill the largest payment so you can snowball that amount toward other debts!
By Frugal Dad on Feb 18, 2008 | Reply
I like the “Little bit of everything” approach, but in the end I will probably just put it all on debt reduction.
By Dividend growth investor on Feb 18, 2008 | Reply
I think I would do a little bit of everything. $600 is not really that much money anyways. Even if you put it in stock index funds, it won’t grow to a million over the next 50 years..
By SingleGuyMoney on Feb 18, 2008 | Reply
Well said Patrick. “Just do what is best for your personal situation.” I couldn’t agree more.
By Mark @ TheLocoMono on Feb 18, 2008 | Reply
I agree with what you said “Just do what is best for your personal situation.”
I have been hemming and hawwing over this, whether to chuck it in my emergency fund or toss it into my Roth. I have no debt to speak of so it is really a matter of whether I want to achieve a short term goal or a long term goal.
Since I am already contributing to my retirement portfolio and contributing to my emergency fund, it is really more of an “icing on the cake” decision. I could always opt to split both down both funds.
By Laura on Feb 18, 2008 | Reply
The check is going to pay my car loan down. It’s at 13.75%, so I’m anxious to knock it out.
By Lin on Feb 19, 2008 | Reply
Well, my husband and I have it all, the credit card and auto loan debt, a struggling emergency fund, and the beginnings of a “saving for a house” fund. I think we’ll go out for dinner, then put the rest toward the credit card. But then, is it beneficial to put a few hundred into each of our Roth IRA’s as well? This is what I struggle with every payday. Hopefully it will be a prettier picture by the time the check arrives.
By Patrick on Feb 19, 2008 | Reply
Lin, I like the idea of going out to a nice dinner. You should take advantage of every opportunity you can to enjoy your spouse’s company.
As for which is better, paying down debt, or funding your IRA’s, I don’t have an answer for you. That is going to be something you decide. Perhaps you could split it into both? Or you can always throw it at your credit card payments, then snowball your debt payments so that each payment you free up goes toward your remaining debts. This will be the quickest way to pay everything down.
The good news is that you are thinking about it now, so that the issue doesn’t come as a surprise and get spent out of lack of having a plan. Good luck!
By kick_push on Feb 19, 2008 | Reply
i wanted to put the rebate into savings and/or my roth ira.. but the $600 will be going directly to home improvement projects.. that’s my main focus this year
By Llama Money on Feb 21, 2008 | Reply
Lin,
Definitely get rid of that credit card debt first! The ~15-20% you’re paying on those cards is way way more than the ~10% or so that you’ll earn in your Roth. Once your CC debt goes away, then you can ( and should ) turn to the Roth.
By Ricky Bobby on Feb 27, 2008 | Reply
I’m buying a Kayak.
By JEM on Feb 28, 2008 | Reply
Our 1200 will pay down our home a little, my roths are maxed, and my 401k is on automatic for taking some out of each paycheck, we have an emergency fund. So, I feel it will be put to best use on our mortgage (our only debt) I want to pay it off asap.
By psk on Mar 3, 2008 | Reply
Credit card free, emergency fund in place, so this money gets to go towards a summer vacation. I’m so excited to take a vacation without using a credit card!
Great article, and thank you for the calculator link.
By Patrick on Mar 3, 2008 | Reply
psk, Awesome! Congrats on being credit card free!
Have a great vacation this year!
By Kendra on Mar 12, 2008 | Reply
I am trying to decide what to do maybe you can help me decide. We have three credit cards with a low limit on all but they are maxed out and we are accuring late fees every month sometimes over 30 days! I thought I should pay those off but on the other hand my husbands car loan has a super high intrest rate and I know we really need to get rid of it so I thought we could trade it in and put the $1800 towards a down payment on something new.
I just can’t decide what to do!!!
By Jeff on May 11, 2008 | Reply
We’re going to buy a $600 gift card at our local grocery store (QFC) - they are offering 10% extra on them. Its something we would be spending $$ every week, but we get 10% more that way. Plus, I purchase my fuel at QFC, so it will help there a little.
The other 600 will likely get used for our daughters graduation present.
BTW, our only debt is our house, and I currently put 16% into my 401K.
By Patrick on May 12, 2008 | Reply
Jeff,
Thanks for the comments. It sounds like you’ve got a great plan for your money and are making some wise financial decisions. Congrats on your progress!
By Hilary on Jun 13, 2008 | Reply
I’m using my economic stimulus check to pay off debt.
By Kelley on Jun 24, 2008 | Reply
I was planning on paying down debt so I could invest more in my 401k and start and emergency fund but wouldn’t you know my car boke down and I now have to spend all of the rebate on fixing it. so I’ve heard that hopeful obama wants to give us a gas rebate next…maybe if he gets elected I can boost the investments. I guess we will have to wait and see.
By Patrick on Jun 24, 2008 | Reply
Kelley,
I hope your car repairs don’t set you back too much! I have no idea what will happen with the elections, or gas prices, but hopefully things will work out for the best. They always seem to have a way of doing that.
By Mary W Magee on Jul 2, 2008 | Reply
If you are already being garnished for a student loan, you should at least be able to keep the Stimulus Payment. In my opinion, it is unfair for the government to not allow the taxpayer to have this one-time gift/rebate.
By carol on Jul 24, 2008 | Reply
Im gonna just go shopping for my kids and then go party. Its time for me to get out after 13 yrs.
By shunika on Aug 4, 2008 | Reply
still trying to get m stimulus refund,whast’s the hold up
By Patrick on Aug 5, 2008 | Reply
Shunika, The first thing to do is try using the official stimulus payment tracker on the IRS site. Keep in mind the stimulus checks can take up to 6 weeks to arrive, so it is possible the check is in route. If that doesn’t work, I recommend contacting the IRS at 1-866-234-2942.