Free Money from Uncle Sam?!?
This month Uncle Sam is going to be giving back a little of what you gave him on April 15th. In an attempt to jump-start a recessionary economy, the US government is giving cash rebates, called economic stimulus payments, to over 130 million households. Washington is hoping that you will run right out and spend it, giving the economy a much needed cash injection. With the help of Rina Pineda, a New York based financial advisor with Strategies for Wealth Creation and Protection and independent Certified Financial Advisor Raymond D. Mignone, we are going to give you some alternatives to blowing it all at the local mall.

Who Will Get Economic Stimulus Payments?
You could be getting a $600+ tax-free check f you live in one of the 130 million eligible households.
In general, you are eligible for economic stimulus payments if you:

The government has made special exceptions for Social Security recipients, veterans, pension recipients, disability and survivors' benefits recipients, railroad retirement recipients, and low-wage earners so that they will also be eligible to receive the payments even if they do not normally file a tax return.

To find out if you are eligible for economic stimulus payments visit the IRS website.

Does Everyone Get The Same Amount?
No, and some people won’t get anything at all.
Since the plan was to put money in the hands of those most likely to need it and spend it, there are income caps on eligibility. Single tax filers declaring less than $75,000 and joint filers declaring less than $150,000 are eligible for the full amount – $600 and $1200 respectively. If you have minors under the age of 17, you will receive an additional $300 for each child. Single and Joint filers whose earning exceed the $75,000/$150,000 cap will received reduced payments.

Check IRS.gov to see different payment scenarios and use their economic stimulus payment calculator to find out how much you may get.

How Will You Blow Your Economic Stimulus Payments?
Will you make and impulse buy and walk away with one 22” chrome rim for your Jetta or the handle of this seasons' must-have Balenciaga bag or almost a whole bottle of Krug, Clos du Mesnil 1995 champagne? Maybe you will decide to use your rebate to save the earth or take a family vacation. Will you play it safe and make a $600 dent in your pile of debt? Only you can answer this question. Hopefully whatever you do with your money will result in a brighter financial future and not a more dismal one. Put your rebate to work for you.


What Should You Do With Your Economic Stimulus Payments?


Analyze Your Finances.
According to Financial Advisor, Rina Pineda, you should seriously consider your financial situation before deciding how to spend your government sponsored windfall. “Look for the hole in your finances,” suggests Pineda. Once you have found the costs that are draining your budget, you can begin to make a plan for repairs.

Prioritize Your Debts According To Their Interest Levels.
Credit card debt is extremely efficient at eating away at both your wealth and future wealth. Using credit cards to finance you lifestyle is like “robbing Peter to pay Paul.” If you have credit card debt at an interest rate of 20%, which Pineda suggests is not unusual, it erases any gains you may be making on your savings and investments. In order to break even, any investments that you make will have to earn equal or more than the interest rate on your credit cards. It's that dramatic a loss. With this in mind, Pineda urges clients to pay off credit card debt first with the highest interest rates before making any investments.


Raymond D. Mignone, an independent Fee-Only CFP and Chairman of the Long Island Chapter of the Financial Planners, whole-heartedly agrees that paying credit card debt is the first priority. If you have gotten your consumer debt under control (congratulations) and carry a low balance or no balance on high interest cards and you want to attack your debt he also suggests putting the stimulus payments towards making an extra payment on any outstanding car loans. Those who commute by car, if their debt is under control, may consider holding on to the money to offset the quickly rising price of gas.

If you are too familiar with high interest credit cards, it’s time to rethink you strategy for choosing a credit card.

Put Something Away For A Rainy Day
Mignone advises eligible taxpayer to consider putting the money into an a Roth IRA, traditional IRA or a no load mutual fund. While it may not seem like a huge amount, your $600+ is a good start in these investment vehicles.

Your mini- windfall might also help you start an emergency fund. You never know when you might need it.

 

Buy Some Peace Of Mind With Insurance Policies.
Because of the current legal and financial climate, Pineda suggests using the rebate to buy some protection from the unexpected. Let’s face it—we love to sue. In an increasingly litigious society where lawsuits can exhaust basic insurance policies, umbrella insurance is invaluable. An umbrella policy will provide further protection for your assets and pay claims beyond what basic polices cover. Evaluate the policies you already have as well as the value of your assets to choose an umbrella policy that will meet your needs. Pineda also recommends the purchase of a disability insurance policy to safeguard your income if you are unable to work do to injury or illness. Many employers offer disability insurance as a part of their benefits package. Contact your company’s human resources department to review the terms of your employer-sponsored policies so that you can decide if you need additional coverage.


Consult a qualified insurance sales agent or hire a financial planner to answer any questions you have about purchasing insurance and help you find the best policy for you.