NEWS AND RESOURCES

Financial Planning for May 2008

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A Few Ideas for Your Stimulus Check
If you are among the 100 million plus Americans slated to receive an economic stimulus check this year, you will be faced with a decision that will have a direct effect on the U.S. economy. Perhaps that effect won’t be enough to sway the economy as a whole, but it can have an affect on your local department store. So, what will it be? Will you save or spend? Let’s look at a few options.

Option 1 – Shop ‘til You Drop

The President and Congress are hoping most Americans take the shop until you drop your bank balance to zero approach. After all, that is the purpose of the stimulus checks. For most people, the stimulus checks are nothing more than an advance payment of a credit they will receive when calculating 2008 taxes. Some folks do not earn enough to pay taxes, especially those on Social Security or VA disability. For these people, the stimulus represents a windfall; small, but something they would not have otherwise received.

Many commentators bristle at the ideas people who pay no taxes will receive a stimulus payment. Congress, however, disagreed. Granted, there was a measure of election year politics in the decision to give these folks some money, but the fact is 98% of these Americans will use the payments for their intended purpose – purchasing something.

Should you choose this option? That’s your decision. There is nothing inherently wrong in spending the money you receive, but there are a few other options.

Option 2 – Pay Debt

Many financial gurus will tell you that your first obligation is to yourself. As such, you need to pay down your high rate credit card debt before you spend yet more money on luxuries. Perhaps you are still paying for Christmas. Using the stimulus payment to eliminate this debt can give you a head start on your 2008 Christmas savings plan.

If you are truly paying a high interest rate on your borrowings, this may be the wisest use of your funds, but make sure you are not just buying into hype. Many people have taken offers from credit card companies to lock in low interest rates on outstanding balances. Paying the debt off over time, at a low interest rate, may actually serve you better.

Option 3 – Fund Your Retirement Savings

Financial advisors are forever telling you that you need to fund your retirement savings to the maximum extent possible. Only then should you look at other investing opportunities. That’s true, but let’s face it, many Americans find it difficult to save anything towards retirement. In this era of high gas and food prices, many people are lucky if they can make ends meet. Well, here’s an opportunity. Rather than spend the stimulus payment, use it to fund your retirement savings. It’s easy money to save because it’s really nothing more than found money; money you didn’t plan on having anyway. It also reduces your 2008 taxes if you contribute to a qualified retirement plan.

Option 4 – Invest

Of course, if you don’t like any other plan, you can invest your stimulus payment. This can help you start a savings plan using money that you didn’t budget for anyway. It’s just another way to start down the road to finding that elusive destination called financial freedom.

Whatever option you choose, make sure it’s the right one for you. Ultimately, you must do what makes you comfortable. Give us a call if you have any questions about how your decision will affect your financial picture.

Enjoy May!

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