The economic stimulus payments are coming! The economic stimulus payments are coming!
If Paul Revere were still around, that’s probably what he’d be shouting right about now. Lately, these forthcoming government payments have been the topic of much discussion: when they’ll be arriving, how much people will receive and how the money will be spent.
For those wondering about that first one, here’s some information on the disbursement of the upcoming economic stimulus payments. Taxpayers who chose to have their tax refunds deposited directly into their bank accounts will receive their stimulus payments first. In fact, some may have received them already, as the first direct deposits were made April 28. For those not in this first, fortunate group, disbursements will be made based on the last two digits of taxpayers’ social security numbers according to the following schedule, provided by the IRS:
Last Two Digits
00 – 20
21 – 75
76 – 99
00 – 09
10 – 18
Claim up to $26,000 per W2 Employee
19 – 25
26 – 38
39 – 51
52 – 63
64 – 75
76 – 87
88 – 99
The maximum payment is $600 for individuals and $1,200 for married couples filing jointly. $300 will be added for each dependent child. For further information, visit the IRS’s Economic Stimulus Payments Information Center.
How should I spend my economic stimulus payment?
That’s the $64,000 question. Or, more accurately, the $600 question. 75 percent of Americans expect to receive economic stimulus payments, according to a recent CBS/New York Times poll. The government’s hope is that consumers will take their money and rush to the nearest department store, but there are better ways to put these payments to use. Some options could potentially serve the needs of both investors and the government by putting money into the economy in worthwhile ways. Others may have George W. Bush gnashing his teeth in thwarted fury. Here are NuWire’s top five ways to spend that stimulus payment.
1. Pay down debt
Americans are up to their ears in debt, owing a total of $2.5 trillion, according to the Federal Reserve’s most recent consumer credit statistics. Average credit card debt per bankcard rose 4.81 percent nationally during the fourth quarter of 2007, according to a recent TransUnion report. The typical family’s credit card balance now makes up 5 percent of their income, and 8.3 percent of households owe $9,000 or more on credit cards alone, according to MSN Money.
Since these government stimulus payments are extra money, it is wise to avoid the temptation to spend it frivolously and instead put the funds towards existing debt. It is recommended that consumers pay off debts with higher interest rates—typically credit cards—before focusing on long-term debts with lower rates. Paying down debt can improve investors’ credit scores, opening the door for more opportunities further down the road.
2. Invest it
Invest that extra money in an employer-sponsored 401(k). Those without one could consider a Roth or traditional IRA up to their maximum contribution level. Investors who want to invest the money while still helping the economy could look into peer-to-peer lending options such as Prosper or Zopa. These programs allow the money to be lent to other Americans who need it to buy things, thus still stimulating the economy while acting as an investment. Alternatively, investors could choose to put their money into a fund focused on anything from wine to foreign exchange.
With gold at $878 per ounce as of April 30, investors would be hard-pressed to buy much using only their stimulus payments, but the funds could be used to add to an existing investment. At $16.78 per ounce, silver could be a more worthwhile investment for those seeking a use for their stimulus funds without spending any extra money.
3. Save it
The recession facing the U.S. could be the worst since World War II, according to a recent article in The Boston Globe. Although the National Bureau of Economic Research has yet to officially declare a state of recession—the official definition is two consecutive quarters of economic contraction, and the U.S. economy grew in the fourth quarter of 2007, albeit by a mere 0.6 percent—economists have already begun to pronounce that the recession is upon us, according to the article.
With the job market and economy struggling as they are, an emergency reserve of funds is anything but a bad idea. An estimated 63,000 jobs were lost in February, according to the U.S. Department of Labor. This was the second consecutive month in which the country’s jobs decreased. Although it’s always wise to have an emergency reserve, in these difficult times it is particularly prudent to be prepared for an unexpected decrease in income. Experts recommend saving a minimum of three to six months’ worth of living expenses. Keep these funds accessible, but not so accessible that they will be spent on a whim. Putting the money into a high-yield, FDIC-insured money market account or a short-term CD is a good bet.
4. Spend it
But don’t just go out and splurge on designer shoes or a new flat screen TV: Spend the money on something smart. Investors holding real estate could use their stimulus payments to fund improvements on their property. The money could pay for some minor remodeling, help to repaint an older home or go toward adding modern features such as solar power.
Alternatively, investors could choose to make a purchase that doubles as an investment, such as a work of art.
5. Donate it
In these troubled times, it is worthwhile to remember that there are many causes in the world in dire need of funds. Taxpayers who do not necessarily need their stimulus payment for themselves may want to consider donating the money to charity.
There are many charities that specifically cater to those with an investment mindset. With the help of investors/donors, organizations such as Acumen Fund and Kiva provide philanthropic capital to entrepreneurs in developing countries. Although sending one’s economic stimulus payment to such a charitable group might not directly stimulate the economy, encouraging sustainable business models throughout the world will ultimately do good. And investors will have the satisfaction of knowing that their funds are bolstering a worthy cause.