How should I spend my economic stimulus rebate?

By glblguy

Cash
Photo by: Tracy O

I recently wrote an article answering the question: Is the economic stimulus package a loan? That article stimulated some discussion between my wife and I about what we will do with the money when we receive it. For us, how we will spend it is a pretty big decision. See, we have 6 kids and based on the Economic Stimulus Payment Calculator we’ll be receiving $3,000 ($1,200 for us and $300 for each child). Some of the ideas we came up with include:

  • Payoff our debt – This of course was the first thing we thought of. After all, that is our focus right now and $3000.00 would take a big chunk out of debt and significantly accelerate our debt snowball.
  • Go on vacation – We’ve had a tough past year and to be honest haven’t had a good family vacation in a long time. One could argue that “we deserve it“. $3000.00 would give us a really nice trip to the beach for a week, or maybe even a few days at Disney.
  • Buy stuff – We need and want a number of things. Our house needs work, some of our furniture needs replaced, we’d like to replace our deck, etc, etc. The money would certainly allow us to buy a few things we’ve been putting off as we have focused on our debt snowball.
  • Save it – We would like to be another house on some land a year or two from now and the rebate money would be a nice start to the down payment. This is really a tempting option for us, since we haven’t even really started saving up the money yet.

The purpose of the economic stimulus package

Here is my big struggling point with some of the options above. The purpose of the package is to do exactly as it’s named, stimulate the economy. By paying off debt or saving the money we aren’t doing what the package is intended to do. From my perspective, the rebate is intended to be spent. Doing so increases demand for products which will create jobs and spur the economy. The other options we looked at, going on vacation and buying stuff will do exactly as intended and place the money right back into the system.

Since we’ve been focused on living more frugally, saving more money, and paying fairly aggressively on our debt, spending $3000.00 seems incredibly foreign to me. The arguments I make above seem like an excuse to just “blow” the money and skip this great opportunity to take a chunk out of our debt.

Decisions, Decisions

So what to do? Spend it, save it, or pay against of debt? We talked about it and talked about it, and decided we just weren’t comfortable spending the whole $3000.00. At the same time, we want to support the efforts of our government to grow the economy. We decided to split the difference. $1500.00 of it will go towards our debt snowball. The other $1500.00 will go to either a small family vacation and repairs to our home. At least that’s the plan for now. I’m sure we’ll discuss it some more before we receive our check.

This whole decision process did make me wonder: What you folks doing with your economic stimulus rebate? Are you spending it? Saving it? Tithing it? Add a comment and let us know!


30 Responses (including trackbacks) to “How should I spend my economic stimulus rebate?”

  1. Kelly Says:

    We are going to use the money to buy new energy saving windows for an old house. Hopefully the return on this investment will be a lower electric bill this summer !l

  2. Laura Says:

    You got some really good ideas!

    Depending on exactly when we get the rebate, it will either help pay off the car loan or be deposited into the house fund.

  3. Dan Says:

    I’m using about half of it to pay down debt and the rest on the kids’ furniture.

    As an aside, I’ve heard most people say they will pay down debt with the rebate. Most of these people are deluded. They will pay down their debt, all right. Then rack it up again ASAP. As Dave Ramsey would say, the debt is just a symptom, not the real problem. The economy will be as stimulated if everyone pays down their debt as it would if everyone immediately spent the money.

  4. Frugal Dad Says:

    I think some combination of saving, spending and debt repayment makes the most sense. I say that now, but might just drop it all on debt when the check arrives! I tend to get overexhuberant about paying off debt and probably won’t be able to resist taking an $1800 bite out of my lowest credit card!

  5. Mrs. Micah Says:

    Screw the economy, ours will go to debt. But in a way that’s part of the economy too…just like investing it would be.

  6. That One Caveman Says:

    Putting it into savings or debt will also help the economy, but in a more indirect fashion. You don’t just have to spend it.

    By putting the money into savings you help the banks shore themselves up by giving them more real, unborrowed money to cover their mistakes. I can’t imagine any industry that could be better served by a stimulus than the banking industry. If you put it somewhere like ING Direct, you get 3% for it and it’s still FDIC insured, just in case.

    By paying off a debt you help your creditor in the same fashion. A lot of the problems with the credit system right now is their increased vulnerability due to debts that won’t get paid. By paying your debt, you not only help yourself but you help give value back into a system that we all use to help grow the economy.

    But by buying stuff, you’re more than likely sending your money overseas. Most of the high-tech stuff people are going to buy just gives our stimulus money to the Asian markets, same as buying lower-ticket items such as clothing. If you’re going to spend your stimulus, the best way to help the economy is to buy locally-grown produce or just about anything else locally manufactured. That way you can be sure the money you’re given stays in your community to help here at home. Vacationing also keeps the money in the US, but moves the money to other parts of the country.

    In the end, the money is yours and nobody can tell you what to do with it. Just because it’s earmarked as a stimulus doesn’t mean you have to spend it. Trust me, there will be plenty of other people spending enough to make up for you not spending if you choose not to…

  7. ArdenLynn Says:

    We paid off everything but the house a few years ago. We do live tight being a large family on a single income.
    With our rebate we are converting the garage to make another bedroom and buying a swingset. We have other bases covered, 401k contributions, emergency fund and long term savings. It’s time to do a few things after a looonnng couple of years. In a nutshell, we’re spening it!

  8. Kacie Says:

    I think you have a great plan! You certainly don’t have to do an all or nothing sort of scenario.

    We’ll probably put most of our $1200 into our emergency savings. Maybe we’ll hold $100-200 or more back to put into the “new laptop” fund, though. We’ll just have to wait and see!

  9. Lynnae @ Being Frugal.net Says:

    I don’t know what we’re going to do yet. I wanted to pay down debt. My husband wants to take a vacation. We’re still discussing it. :)

    I honestly see his point. Last year was a rough year, and we never even took a weekend trip as a family, much less a week off to spend time together. And that’s important.

    In the end, I’ll probably go with what my husband wants. :)

  10. Marie Says:

    We’re getting 1200 and we were going to put half in savings and half towards an extra payment on our student loans. But then we ended up with a great opportunity to purchase a home – we are moving to a state with a lower cost of living. So it will probably stimulate the economy by putting in our backyard, a garage door opener, or put a ceiling fan in one of the rooms – we’re moving to the deseret and everyone tells us ceiling fans are essential to reducing how much you have to run your air conditioner.

  11. Nate Says:

    I’m using it all to pay off debt. I was doing my fair share of spending before and I don’t see that it did much good for me or the economy. Besides, I’m taking the perspective that by paying off debt I’ll be helping the economy more because I will then have more money to spend–no payments + wise investments=more money. I personally don’t think this plan is going to help any, if indeed the economy is on it’s way down. I would make the argument that we need to let this thing runs it’s course. It’s a scary thought. But the government isn’t our savior.

  12. Lee Says:

    Because we file self-employed, I’m not sure what we’ll receive, but if we do get a nice check, we’re going to make sure the bills are paid and put some aside for emergencies, because we don’t have any savings:( It’s been quite a year…this will definitely make things easier.

    I think you’ve got the right idea in splitting the amount toward different things, because I know I’d feel guilty if I spent it all and didn’t do something to further the stability of the family through debt-repayment or savings.

  13. Kristen Says:

    My fiance and I will be putting our money towards our wedding. We are determined to pay for our entire wedding and honeymoon with cash and not start off married life with wedding debt. So far we’ve done well at sticking to our budget and not charging a thing. This will be a big help.

  14. Aaron Stroud Says:

    Splitting your rebate is probably the best idea, you’ll see some debt disappear and have the chance to have a little bit of fun with the money.

    However, don’t let the media or government fool you. Even if we all spent our rebates, it would have little to no real impact. The rebate checks appeared out of thin air (inflation) and more federal debt (which we’re all liable for).

    Additionally, businesses have enough sense to recognize the difference between a one time demand (a rebate) and the potential for repeat business (a tax cut).

    Lastly, the money wouldn’t disappear if you choose to pay down your debt. The lenders’ money would be returned and they would also have the choice to either spend or re-invest the money.

    How do we plan to spend our rebate? We’re putting our rebate directly into the mortgage.

  15. Sue Says:

    Here’s another observation: many of us aren’t getting all that much (less than $100 for me) – solely because of what we earn (mind you, not just salary, but running our own companies, earning interest and dividends, etc.) or because we don’t have kids. But, to whit, a percentage of all my non-salary earnings does get earmarked for charity and the rest will go into my ING account (which, BTW, after today’s 3/4 point rate reduction will be paying how much? They still list 3.10, but they’ve already lowered CDs to under 3%).

  16. Jeremy Says:

    I don’t really care what it is intended to do. They decided upon the amount and method after lots of research, I would assume. So they know that most people will spend it. So if 10% save the check, or pay off debt, so what. That’s still some odd billion dollars of inflation injected into the economy. I’ll take the money, but I think this is all a bad idea.

    Just my $0.02

  17. MoneyBlogga Says:

    For what it’s worth, I would save that money for your downpayment towards the home + land. Look on it as helping the housing market at some point down the road. Maybe not right now, but at some point in the future. When I read about governors, presidents and just politicians in general and the scams and scandals they are involved in, I would think that there would be a heck of a lot more money in the coffers if that lot just kept their hands out of it. The economy is suffering for many reasons, and I would say that government corruption and financial fraud more than plays a bit part. Manipulation is never a solution. The government needs to butt out and take care of business at the most fundamental level of accountability.

  18. glblguy Says:

    “But the government isnÂ’t our savior.” – Nate, well said.

    Everyone else – Great comments, thoughts, and perspectives. Thanks for sharing! You surprised me with all of the comments!

  19. jay Says:

    Interestingly, you, and most bloggers who talk about this rebate don’t mention what we feel is an absolute commitment. The money rebated to us in the name of our children, we have given to our kids. This year it will be an outright distribution, as the only reason it comes to us IS because of the kids. The previous time, we deposited it for the kids, it has grown a bit, and it will soon be theirs to do with as they please.
    It is our obligation to take [financial] care of our kids, with no windfalls from the government. Thus this particular “windfall” should be shared as it was calculated.

  20. glblguy Says:

    Jay – For us, paying down our debt and going on vacation is helping our children. We are helping our future which helps theirs and taking them on vacation which they love. Good perspective, and a point well made.

  21. Four Pillars Says:

    I can’t believe you are planning to spend part of the money to ‘help out the economy’. Don’t take this the wrong way but from your stories of past overspending, I’d say you have already done your part for the economy and more!

    I’m not saying put all the money to pay off debt, just that if you want to spend it, spend it for yourself – not for the economy.

    Mike

  22. Tom Says:

    Like you, I will be paying down debt and paying for a vacation that I will be taking. It is more important to me to pay down the debt than to buy “stuff” and possibly kickstart the economy. My economic situation is the thing that I am concerned about right now.

  23. glblguy Says:

    @Four Pillars – See your point, but at the same time I don’t want to undermine what our government is trying to do. Also, while I stimulated the economy in the past, that has no impact on the present.

    @Tom – My concern is that if everyone thinks like this, the whole intent and purpose of the plan becomes diluted or even not effective at all.

    Understand, I am not looking for an excuse to just spend, I’ve moved well beyond that. Just want to be a good citizen and help where I can.

    The points about saving and paying on your credit cards also helping the economy do have me thinking though. Need to do a little more digging and reading.

  24. Franco Says:

    Well one thing you could do is give it to me, since I paid over 30 in federal tax this year.

    This is really nice for those that don’t pay much, but how do you think people like me feel who work 60 hours a week and pay our fair share then turn around and have our tax money redistributed for others to spend

  25. glblguy Says:

    @Franco – Assume you mean 30k…that is a lot. Why do you have to pay so much?

  26. No Debt Plan Says:

    Most of ours is going to our emergency fund.

    As far as I understand it, the only thing (in this case) that stimulates the economy is spending. There are three primary factors that go into the economy in the most basic economics class sense: consumer spending, government spending, and investment (capital investments, not investment in the stock market).

    If you spend your $1,200 on something like a good or service, you put money into the hands of a retailer or service provider, who then employs someone. Those people then go spend money, and that helps other people stay employed. Oh yea, the whole way the government collects taxes.

    Paying down your debt, in this case, would not bolster the economy as it doesn’t have a trickle down effect.

    True, putting the money into the bank will help the banks, but the sole purpose of the bank is to lend the money out. With credit standards tightening, that may not be the easiest thing.

    My two cents. :) I am not an economist, I am an ignorant blogger. Feel free to rip my argument to shreds!

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