Debt Free / Care Free

Your Tax Rebate:
Spend….But Spend Wisely

by Glinda Bridgforth

"Receiving an unexpected windfall is great! But making the same mistakes from the past won't help you reach a new level of financial prosperity in 2008."
—Glinda Bridgforth

One of my favorite mantras is "spend less and save more." As a financial coach who specializes in cash flow and debt management issues, I am always encouraging clients to avoid unnecessary spending. Therefore, the economic stimulus package signed by President Bush on February 13, 2008 left me with conflicted feelings.

The law, which he called a "booster shot" to the economy, is intended for certain individuals to receive a rebate check that should be spent to help ward off a recession. Here's what it involves in a nutshell:

• The current stimulus package is for $150 billion.
• 117 million families will receive checks beginning May 2008.
• Businesses will get $50 billion in incentives for investment purposes and equipment.
• The full rebate to individuals is up to $600.
• The full rebate to couples filing jointly is up to $1,200.
• The full rebate includes $300 per child.
• The rebates apply to individuals earning $75,000 or less and couples earning $150,000 or less.
• Approximately 35 million families earning at least $3,000 (wages, Social Security or disability payments) that paid little, if any, income tax would be eligible for a rebate of $300 for an individual or $600 for a couple.
• You must file a 2007 tax return.

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What concerns me about the spending emphasis on this money is that excessive spending is why a majority of Americans are living paycheck to paycheck. Also, some people have an "all or nothing" mentality about money. They will spend it all, save it all, or put it all towards debt. If you choose to spend it, I strongly recommend determining the difference between your wants and your needs. For example, a set of new tires for your vehicle is a need if you are riding around on dangerous balled tires. Given the same circumstances, purchasing a flat screen television at this time is definitely a want.

We will all anxiously await the mail and get excited when we receive the rebate checks. But we must also make a wise choice in how we use them. My suggestion would be to consider the "10/30/30/30 Rule." First, tithe 10 percent. Next, split the money three ways: 30 percent should be set aside in savings for future unplanned expenses. For example, a plumbing problem occurs or your refrigerator breaks down. The next 30 percent should be spent, in essence on yourself or to help stimulate the economy. This is where you address your needs and wants. If you are past due on your utilities, get them current. Given the rising cost of food and gasoline, this could be the money to fill your freezer or set aside a reserve fund for fuel. Finally, 30 percent should be used to pay down your debts. Remember, next to paying your bills on time, the best way to increase your credit score is to lower your outstanding balances.

As in any situation, you must look at your overall circumstances from a realistic viewpoint and use that to dictate appropriate use of your rebate check. If you are facing an upcoming increased mortgage payment adjustment that you'll be unable to meet on a monthly basis…don't wait. Be proactive and start communicating with your mortgage company now. Perhaps your rebate check can be used to fend off a default and possible foreclosure. Be wise and take steps now to avoid losing your greatest material asset and the American Dream—your precious home.

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