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What To Do With Your Tax Rebate Check

By Joshua Seth |

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Did you get a letter in the mail a little while ago stating that you’ll soon be getting a few hundred dollars of your own money back from Uncle Sam? Have you been thinking about what to do with it? If so, you’re like millions of Americans right now, eagerly awaiting their “free money”.

Of course, nothing is really free. I’ve read that somewhere around 40 million dollars were spent just sending out those notification statements. Of course, they could’ve just notified us at the time we received the check but that would’ve been far too efficient.

And who knows how much interest we’ll all have to pay on this “stimulus package” over time. Oh yes, we’ll have to pay interest on our debt and it will eventually come in the form of higher taxes. Our government has financed it’s activities through the creation of debt ever since Nixon took us off the gold standard back in 1971. That debt will continue to drag down the value of the dollar. The lower the value of the dollar becomes the higher the relative cost of imports (like oil). This introduces inflation into our economy and eventually higher taxes will be levied in order to pare down debt and restore value to the currency. Either that or someday it’ll take a wheelbarrow full of cash to buy a loaf of bead.

What does this mean for you?

While it’s fun to think about buying toys and TVs with that nice juicy check, perhaps a better plan would be gird yourself against a further economic downturn by playing defense.

Think about it, we’re borrowing the money to finance the “stimulus package” from overseas lenders so we can spend it on imported goods that will primarily stimulate economies other than our own. Is that going to lift us out of a recession? Turn around the housing market? Create jobs or reeducate our workforce for the changing demands of this new world economy? Didn’t think so.

Here are four ways to reinvest your tax rebate in your own household and help insure that your personal financial picture doesn’t reflect that of our nation as a whole.

Idea Number One: Pay Down Credit Card Debt

If you carry credit card debt, pay that down first. The interest you pay on revolving credit card debt is typically not tax deductible and it is not an asset that appreciates over time, therefore it is what is known as “bad debt”. Get rid of it. Our government can’t at this point but you can. You are not truly free when you live in debt.

Idea Number Two: Start An Emergency Fund

Do you have one? If not this is an easy way to fund it. Stash something aside for a rainy day. People used to have savings accounts but those days have long passed. This is the next best thing. 2005 marked the first time since the Great Depression that American’s had a negative rate of savings (more debt than assets). You can turn that trend around in your own household by using this check to start an account that you can build up until it’ll cover six months worth of bills.

Idea Number Three: Pre-Pay Your Taxes

Simply put that check toward the prepayment of your estimated tax bill. That way, as the cost of living continues to rise and the value of the dollar continues to go down, at least you’ll have a bit of a buffer against it. You know that big bill is coming anyway, this will take some of the sting out of it without cutting into your monthly budget.

Idea Number Four: Invest In Yourself

The more you educate and improve yourself, the better positioned you are to deal with whatever life throws at you. It’s always more productive to take responsibility for improving our own lives than it is to blame or complain. Pick an area of your life that you would like to improve and invest that money in educating yourself.

History Repeats: Different Times, Different Places, Same Stories

Remember your history. More money can be made in down markets than up and many fortunes have been made in the troughs of economic downturns, but only if you play smart until those opportunities present themselves.

This isn’t government largess you’re getting, it’s a pacifier stuck in your mouth so you won’t ask too many questions about why gas is $4 a gallon.

I wonder what they’ll give us when it’s at $5?

NOTE: Comments are now closed. Here is what was posted…

Natalie

great advice… i thought of travelling with that check, but now i will pay off the credit card. too bad things are changing fast to worse.
Barbara


Excellent advice.
Extremely well written.
The “gift” of money can be intoxicating. And no one can make a wise decision when intoxicated.
Thanks for the sobering guidance!


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