To Spend or Not to Spend
So has that check burnt a hole in your pocket yet? You know the one I am talking about: the “Economic Stimulus” check that we’ve all been waiting for. For some, there’s no question what the money is going towards – come May 2nd, that check will be spent! For others, there is still a question about what to do… Spend or save? Pay some bills?
For someone in their twenties, an extra $600 is a big deal. That’s if you even get one. There are a few snags along the way, like if you are claimed as a dependant (like most college students are) you won’t see an extra dime. And if you didn’t file your 2007 tax return, don’t bother looking for extra money in May.
For those that know what’s coming to them, I’d bet that you could think of a lot of ways to spend that $600 ($1,200 if you are the lucky married type). I’d also bet that you have seen and heard all of the opinions on the subject, about the media clamoring over where the money will actually be spent, and the speculation of how effective the “stimulus” will be.
But at the end of the day, what it comes down to is the fact that people have too much debt and financial worries. What was originally intended to “stimulate” the consumer spending habits will merely stimulate their bank accounts and not much else. Skeptics voiced this concern when Bush pushed the Economic Stimulus Act of 2008 through, but it was assumed that the American consumer would spend the money, fast. But this was also during the time that the government denied that the economy was heading for a recession…
So let’s think about it rationally. How can one reasonably expect consumers to use the extra cash for something like new clothes, when they are concerned about a recession, the rising costs of gas and food, inflation, the subprime mortgage mess, a credit crisis, a Bear Sterns implosion… and the list goes on and on. The answer is that most people will not go on a shopping spree – my bet is that most people will use their stimulus check to pay off existing debt.
For people who are in their twenties, it’s a very strange and scary environment to be starting out in. So do you squirrel away the extra money (if you even get it), or do you go be a good little American capitalist and spend it for the betterment of the economy?
I don’t know about you, but I am not feeling very capitalistic. And please keep in mind, the IRS says “up to $600…” and so on. Not a flat $600. Some people will get less than that. My accountant told me that I could reasonably expect to see $344… not the entire $600. That’s not much at all. And with the way gas prices are over $4.00 a gallon here, I could easily spend that $344 in gas and a few lunches at work. So there’s no way that I am going shopping. I need that money for other things!
However, not everyone shares my sentiment. And it’s certainly understandable – especially since I know that there are those who have already spent the money (probably the week they heard about it)… we won’t point any fingers, I promise.
So let’s look at the pro’s and con’s of To Spend or Not to Spend…
Option 1) Spend it!
The mentality here is that this “economic stimulus” is free money, so why not spend it? Besides, you’re helping the economy, right? Well, maybe.
Maybe your contribution will make you feel snazzier because of that new outfit you bought, or the new flat panel HDTV… or maybe you just want to buy something extra for the house, your wife wants to go shopping, or maybe you want to take a mini vacation?
All that will “stimulate” the economy. These are rough, tough recessionary times, ya know! Thus, you feel compelled to do your part and the government is making it possible!
Option 2) Pay some bills…
Spending can be two-fold, right? Maybe you have some bills you should pay, too. Car payments, rent, utilities, cell phone bills… they all need to paid, unfortunately. And although this “free” money won’t pay for everything, it will certainly take a nice chunk out of any balance you owe.
As an added bonus, did you know that if you pay a balance off on your credit card, you gain a return on your money equivalent to the interest rate you would have paid over the month… since you no longer have to pay the interest on the balance, you’ve effectively saved money while paying off some debt. Good deal!
Option 3) Save it!
Yeah, it’s not as exciting as option 1 or 2. But it’s an option, nonetheless. Squirrel away the money for a rainy day (there will be some). Plus, you can earn interest on the “free” money, making it grow into more money… while it’s true that most banks have sad savings rates, there are options: try a CD or an online savings account, like ING Direct, who give better rates and take little effort to set up.
Or, you can do like my colleague plans to do… To appease his wife and still cushion his financial situation, he has chosen to give a third of the check to his wife, a third towards savings, and a third towards paying bills.
It’s not a bad idea, but everyone is different. Chose what fits your needs and stick to it. The worst thing you could do is spend more than what your stimulus check is… Good luck!
~K
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