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.