Be Smart With Your Tax Rebate

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The president just signed a $168 billion economic stimulus package that authorizes the government to send out rebate checks. The idea is we all are supposed rush out to spend our surprise money to stimulate the economy. In turn, the businesses selling those products and services to us will spend their profits on more products and services which are supposed to jump start the economy once again.

Now let’s look at the logic here. This new bill is encouraging us to spend more – the very attitude and mindset that got us into financial trouble in the first place. In fact, these very same Americans encouraged to go out and spend their rebate checks or even take on more interest are already over their heads in debt.

Of course there has been no mention of debt reduction or building an emergency fund. This band-aid approach to bringing some financial healing will be short lived at best. You can do something concrete with this rebate check and make it count.

Here are 5 Ways to Get Real and Be Smart With Your Rebate

1. Pay down your credit card balance as much as possible. By paying off debt you are actually making great impact. A couple with $10,000 in credit card debt who applies $1,200 to that balance, is paying off more than 10% of the entire amount. Now, that’s significant. Not counting how much will be saved in interest over the length of the loan.

2. Get ahead on your mortgage payment. This is especially true if you have one of those adjustable-rate mortgages that caused the whole sub-prime crisis. If you are in danger of not being able to make your payments, don't even consider any other option for this rebate.

3. Set up an emergency fund. With the economy is struggling, people are losing jobs, and uncertainty on every side wouldn’t it be smart to have an Emergency fund to fall back on in case of job loss? Yes using your rebate wisely may bring a lot of peace of mind in the future months.

4. Make a deposit to your IRA. Here’s a smart move that will bring a double dose of wisdom. You get a tax break and you're saving for your retirement. While retirement may seem like a long way off it really isn’t. So you may forfeit some things you want now but you are doing it to make sure you can cover your needs in the future.

5. Start or add to a 529 savings plan to help pay for your children's or grandchildren's college education. There's no better investment in our future! They may not see the benefit if this in the present but as an adult you are considering their future. You can add to this on their birthdays or on holidays rather than opt for the throw away gifts.

Yes, being smart with this tax rebate check is going to require a less self focused approach to how you spend it. After all who couldn’t use a celebration of some kind. You may even talk yourself into believing, “Well I wouldn’t have had it to spend anyway.” You will have an opportunity to make it count. You are going to spend this money just spend it on the right things.

Harold Herring, President and Co Founder with John Avanzini

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