In the coming weeks nearly 25 million Americans are going to bereceiving a check in the mail from the U.S. Government. The money iscertainly nothing to sneeze at since it can be as much as $400 perchild under the age of 17.
This is happening (the first batch of checks has already been sentout) because of the new tax cut bill that went into law back in June.Part of this tax law said that (paraphrased) 'retroactively back toJanuary 1, 2003, the child tax credit will be raised from $600 to$1000 per child'. The cool thing about this law is that if you filedyour 2002 federal tax papers and claimed the child tax credit then,you get a check now. Automatically.
Important thing to note here: when you file 2003 taxes, you need toreduce your child tax credit claim by the amount you received in themail, but don't worry, most tax people can handle this detail.The stated purpose of this huge influx of cash from the tax payerscoffers in the government back to the tax payers themselves is tohelp stimulate the economy. That's right, it's all one big game tothe people in power who want you to spend your money that theyreturned to you so that they can point to the charts and say 'See,the economy is rebounding, just look at all the stuff people boughtlast month!'.
Check out Wal-Mart, they already have little helpful tags on theshelf telling you to bring in your rebate check and spend it withthem.
So in light of all the issues and reasons behind the check, andbesides the fact of all the business' wanting to take it out of yourpocket, there leaves one major serious question.What should you do with this windfall of money?
Here's my suggestion in a particular order.
1. Pay Down Your Credit Cards
If you have a credit card that you carry a balance on, you canreceive an instant tax-free, risk-free return on your money by payingoff that debt. No other investment can give you that guarantee.
2. Buy an item of Long-Term Value
I mean buy things like home improvements, home appliances such as astove or fridge, or maybe take night courses to improve your jobmarketability. Spend the money on things that will pay forthemselves in the long run via adding value or convenience to yourlife.
3. College Savings
This windfall is being created by your child so maybe you shouldspend it on the kid's education. Now is perhaps the time to start acollege savings plan.
Section 529 College Savings Plans are offered by many states. Checkinto your states plan, you may receive a state tax deduction for thecontribution and the money grows tax-free under certain rules.There is also the Coverdell Education Savings Account which may beused for educational expenses at the secondary and college level. Youcan put away as much as $2000 a year.
4. Retirement Investment
What about your ROTH IRA, if you're eligible and you aren't fullyfunded put the money there. There is also the traditional IRA, or avariety of other avenues in which your money will grow until you needit for retirement. Consider talking with a certified financialplanner about your investments, but make sure they are a fee onlyplanner.
DO NOT SPEND the money on consumables like vacations, dinners,movies, cars, etc. These things are gone as soon as you spend themoney, sometimes before you pay for them if you use the credit card.I believe that any windfall you receive should be spent wisely. Havea plan ready for those occasions when you do receive a windfall fromthe government or anywhere else, it will help resist the temptationto blow the money just to boost the economy. You only get one chancewith your money, make it work the hardest for you.
Roger Sorensen
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