May 6th, 2008 by john 
in Categories: 
Got your attention, now bear with me! I will get to the 17% return in a minute.
As most of you are probably aware, the government started direct depositing the economic stimulus payments last week. According to the U.S. Treasury nearly 8 million taxpayers have received their checks, so far. If you are still wondering about the Economic Stimulus Package, check out my post ESP: It’s All Gravy Baby!
So the next question is what to do with your piece of the pie, right? The way I see it, you have three choices:
1. Save it
Depending on your financial situation, this may be the smartest choice, all be it, not the most exciting one. But, if you do not have an emergency fund, usually 3 to 6 months worth of expenses, this could be the opportunity to start one. Hey, Rome was not built in a day, you have to start somewhere. Seize the moment! Start your family emergency fund today!
2. Spend it
Now you’re talking John! I hear you! I can almost taste that HD DVD player! All kidding aside, you could splurge and buy you or your family something. In my opinion, this should only be done if you are carrying NO high interest consumer debt, namely credit cards or adjustable rate loans. I know, I just ruined your day. But before you click the X to shut me up, consider this: If you take your government windfall and spend it, it could have a double negative effect if you are carrying consumer debt. First of all, you will not have it if you need it to pay off loans due to an event such as the loss of a job. Second, and more likely, you will continue to owe “whatever” on the credit card at 9 to 21% interest. Let’s say you owe $1200.00 on credit card “A”. It has an interest rate of 17%. And you are only making the minimum payment. It will take you 10 1/2 years to pay it off. It will cost you $896.00 in interest for a total repayment of $2096.00. If you owe more than $1200.00, the numbers start to become very scary. So, think carefully before going out and blowing your stimulus check!
3. Pay Down Debt
This is the most “Thankless” option. You know it’s the right thing to do, it just hurts to stroke a check for something you received months if not years ago. I know, I’ve been there. Let’s try and look at the situation from a different angle. Let’s say you owe $1200.00 on credit card “A” at 17% interest. If you choose to take your stimulus check and pay off the card, you effectively just made 17% on your money! You saved yourself from paying out the interest, keeping it for yourself. That’s better than any savings account, bond or even the stock market return lately! Every penny paid on your credit cards will give you a 17% return (or whatever your cards interest rate is) on your money, until the card is paid off! Not bad! If you owe any credit cards, I would strongly suggest working towards paying them off.
Of course, depending on the size of your check, you could buy yourself a little something, save a little and pay down some debt. If you don’t owe on any loans, the choice is yours whether to save or spend it! In any case enjoy this little government gift from our lovable, concerned politicians in Washington. Wink, Nod, Wink. And if you are not able to spend yours the way you really wanted to, fear not, it sounds like our friends in Congress are already talking about “Economic Stimulus Package: The Sequel”. Stay tuned!
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I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.
Tim Ramsey
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You act like this little check is going to be a big deal. Americans have increased expenses on average: food, transportation, credit, heating and cooling, insurance etc of 3,000 dollars more a year. and this 300 dollars or more is going to make a difference. Wake UP! are you nuts?
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John reply on May 7th, 2008 9:33 am:
EuroYank – WOW! Judging by your comments, you are not a regular reader. One of the main reasons I started this blog was to try and help people find ways to save money and improve their lives. I am keenly aware of rising prices. I do all of the shopping in my household. I figure “Use Your Economic Stimulus Check to Buy Groceries and Gas” is a stupid title. If you cannot afford to save anything or pay down any debt then obviously I was not speaking to you in this particular post. Try reading, http://www.ezgreatlife.com/2008/03/16/5-tips-to-cut-your-grocery-bill-today or http://www.ezgreatlife.com/2008/03/18/no-thanks-ill-just-have-water or http://www.ezgreatlife.com/2008/04/06/savings-bonanza-check-it-out or http://www.ezgreatlife.com/2008/04/17/how-we-saved-2548000-and-so-can-you . In ESP: It’s all gravy, I pointed out that 170 billion stimulus package won’t help much in a 13+ trillion dollar economy. In fact I don’t believe handing people lump sum checks is a good idea at all. If you really want to help the average Joe, lower the overall tax rates and give people more money in their paychecks to help off set the huge inflation we are experiencing. In our consumerism based economy, handing out lump sum checks inevitably encourages people to purchase things they can’t afford. Judging by the fact that Americans spent 155 Billion dollars last year on consumer electronics, I felt that someone out there could use a little advice about saving and paying down debt. And many of these people who helped spend 155 Billion on electronics are also having trouble buying life’s necessities, like food and gas. You have to start somewhere. If you continue to service high interest debt, you will never be able to afford the continually rising cost of living. Also, if you really cannot afford to pay for food, gas, insurance and the like, step number one in my book would be to turn off your cable TV, turn off your cell phone, cancel your kids cell phones and cancel your high speed internet. That would save you $200 a month, $2400.00 a year. A little nuts, my wife thinks so, but that’s a good thing!
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This money might not make a huge difference. But every little bit helps, and I’m not going to turn down “free” money! Unfortunately I guess I will have to use mine to pay some bills. Or even save some, but only to use in a few months to go towards my “property tax” bill that will be arriving in about July! Ugh. Oh well, I guess the “big screen” tv my husband is dreaming of will have to wait – lol. Good news though I think I should be getting mine by direct deposit by this Friday, according to the IRS website. Yea! Also, really John you heard they could be having another stimulus check? That would be great!
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John reply on May 7th, 2008 10:37 am:
Hi Sue! I’m glad to hear you will use the money to pay off some bills and save a little! Our property tax has doubled, yes doubled in the last three years! No kidding. I know it stinks to wait on the TV, but the good news is the longer you wait the cheaper they seem to get! And yes, I have been reading about rumors that a second round of Economic Stimulus is being discussed!
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I think EuroYank woke up on the wrong side of the bed. Besides, most families will receive at least $1,200 and up to $1,800, not $300 like he claims.
You make an excellent point John; sure prices are rising on most consumer staples, but with a little sacrifice (something that is beyond most Americans) we can still thrive. If a family can’t afford to use at least some of this money to pay off debt or save, they need to seriously evaluate their situation. I hate to generalize, but many people who are struggling aren’t doing everything in their power to help themselves.
Every penny that is used to save or pay off debt is going to be compounded many, many times in the future. Buying an HDTV or using it for consumable goods is a decision that won’t help in the long term at all. A lot of people claim they need this money, but in fact they are using the government’s bail out as a crutch.
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John reply on May 7th, 2008 10:22 pm:
Blake – I too believe that a lot of people are not willing to sacrifice anything. You know, I was about your age when I started saving for retirement. What motivated me was sitting down with a calculator and figuring out how much money I could accumulate by retirement if I started putting away a little every paycheck. I made next to nothing and thought that putting away 1% was the end of the world. I gradually increased the withholding percentage over time. All through my twenties, we did without many of life’s “luxuries”. Now that I am in my late thirties, I am starting to see the fruits of my endeavor. I think many of us don’t fully understand the shear power of compounding interest and how sacrificing a little now will reap huge pay offs in the future. I know one thing, if I had no savings, I would do everything in my power to try and put away this government payout. This way, if the economy gets worse, and it sure looks like it will, you would at least have something to fall back on in an emergency. And if you don’t have to tap into it, it will grow into a huge sum, 20 or 30 years down the road.
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Hi John,
As always I enjoy your posts. I think the part about using it to help pay down your credit card is very wise. I am wasting good money there every month. I will be so glad, when we see the light at the end of the tunnel. The “Economic Stimulus Package: The Sequel”, sounds very interesting also. I’ll be looking forward to more information on that in the future.
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Hi Robin – I’m glad you enjoy and find some value here, that makes all the time spent well worth it! Don’t give up on paying down the credit cards, it can be a slow process, but it is a great feeling when you free yourself from that burden! As soon as I have something concrete about additional economic stimulus, I will share.
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Hi Tim – Welcome! I invite you to join the discussion. I am trying to create a community here, where we can all learn from each other. Do visit often! Take care.
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It’s true then what Suzie Orman? of CNBC advises her audience then- pay up debts especially accumulated credit card payables with this money.
I have debts but not from credit card bills. Sorry for us in this part of the world, we have no such banana available to us. Argh!
Good morning from us here in Southeast Asia.
Cheers!
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John reply on May 8th, 2008 7:23 am:
lotusflower – Thanks for stopping by! Yes, in my humble opinion Suzie Orman is correct. My wife and I are fans of her CNBC show. We have read most of her books. Good advice!
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Love your post.
It’s full of common sense we all need to be reminded of.
Thanks for the information.
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It doesn’t seem logical that borrowing money from the treasury will be good for the economy. All borrowed money has to be paid back eventually, and with interest – so it isn’t free money. And that money had been budgeted for some other purpose. [I hope that purpose wasn’t an important item!] It also seems that, at best, this is a very short-term fix. It will be nice to receive the cash – but I don’t expect it will make any difference in this huge economy. I agree with you John, that saving anything for the hard times ahead would be very wise. Or paying down some debt first. Next year is when the food prices and these additional transportation costs are really going to hit home. Yes, it may be time to cut back on the frills!
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John reply on May 16th, 2008 1:37 am:
Genie – I agree with you completely. It’s definitely not free money. It comes with a huge price to pay down the road. My family has already started to cut back on some expenses. I am looking harder for shopping bargains. I am holding off on several larger purchases. And we are trying to save a little extra to boost our emergency fund.
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