Use tax rebate to pay down debt, boost savings
Greg Kratz
More importantly, have you already spent it?
If you haven't received your check yet, the government says the money is on its way. And, in response to my request, several of you have told me what you plan to do with the money.
Typical of such responses is one from a reader named Kathy.
"My husband and I have worked out a system for any extra money that comes in, including tax refunds and rebates," Kathy wrote in an e-mail. "We put half in short-term savings for vacations, home repairs, etc. The other half can be used to pay off debt or put into long-term savings. This has worked well."
I'm sure it has, Kathy. And it sounds like most Utahns are making similar plans. A Dan Jones & Associates poll for the Deseret News and KSL-TV, released last week, showed that 44 percent of those who will receive a rebate plan to use it to pay bills or debt. Another 25 percent will save it, and 3 percent will invest it. Only 9 percent said they will spend it on "nonessential items."
So now we know what you are planning to do with the money. But what do financial advisers think you should do with it?
Sharla Jessop and James Derrick at Salt Lake-based Smedley Financial Services said people shouldn't worry about being patriotic.
"Treat the rebate as a windfall — something that will not be repeated — and make the most of it," they wrote. "If you have high-interest debt, paying off your debt should be first on your list. If you're living paycheck to paycheck, this is your opportunity to get ahead by building up a short-term emergency account. In addition, save a portion for the future by funding your Roth IRA.
"Psychologically, it's hard to receive a windfall and not spend it. If you're going to spend a portion, make a plan to split the money in thirds: spend a third, pay off debt with a third and save a third."
Sounds like a good plan. And it was echoed by others, including Alan B. Tingey, principal at Cannon Tingey Investment Advisors in Salt Lake City.
"While the intent of the government is that you spend your rebate on goods or services to provide immediate stimulus to the economy, a citizen should have no hesitation using the money to provide the maximum benefit to himself or his family," Alan wrote in an e-mail. "There is nothing unpatriotic about paying down credit card balances or placing the funds in a savings account.
"Whether you spend the money on a vacation or simply pay off obligations, both strategies will ultimately have the effect of stimulating the economy. In the case of the vacation, you are putting the money directly into the economy; when you pay down debt or add to your savings account, you are putting money into the country's financial system, which becomes new capital that can be used to grow the economy."
Recent comments
Using government debt to pay down consumer debt. Priceless!
Government Is Bankrupt | May 4, 2008 at 4:33 a.m.
