What Should You Do with Bush’s Rebate Check?

Experts say to save now before a recession hits

hand_cashFears of a recession coupled with an unsteady stock market, led President George W. Bush last month to introduce an economic stimulus package, which includes nearly $150 billion in tax rebate checks for low- to moderate-income earners and struggling businesses aimed at public spending and, hopefully, a revamped economy.

The president’s plan is designed to be an interim solution to the fears of an impending recession. He has proposed a stimulus package approve by House leaders that would send rebates of $600—$1,200 to more than 100 million Americans who earn $3,000 or more, plus an additional $300 per child. Individuals who earn more than $75,000 and couples making more than $150,000 would receive less. The Senate’s stimulus package proposal calls for rebates of $500—$1,000 for a larger group, including 20 million seniors and 250,000 disabled veterans, and individuals earning up to $150,000 or $300,000 for couples. This package also includes a $14.5 billion unemployment extension, $1 billion in heating aid for the poor, and a tax break for businesses suffering losses to reclaim previously paid taxes.

Calling the president’s plan a “shot in the arm,” Gil Michel, president of the interactive Web-zine BlackMoneyMatters.com says, “It’s a good start and may certainly help on a short-term basis. But the problems facing low- to moderate-income earners need to be looked at over the longer term.”
Consumers interested in calculating their stimulus rebate amount can use BMM’s online Economic Stimulus Rebate Calculator found at www.BlackMoneyMatters.com.

While the government hopes the public will purchase big-ticket items with the anticipated rebates, Michel says the targeted consumers will likely catch up on bills. “Many times, when the funds are in anticipation, they are already accounted for. These are people with real economic needs, so they are spending the money. Their first inclination isn’t to save,” Michel says.

But if the money isn’t already accounted for, consumers should consider a savings account or reducing personal debt. “I think consumers should be building the same foundation now as they would were we in a recession,” says Michael E. Goodman, president of New York City-based Wealthstream Advisors Inc. “The best time to establish common practices is when times are good.”

If consumers are carrying high-rate debt–defined as a rate higher than any rate they’re getting on their savings accounts–reducing or eliminating the balance sooner rather than later can save consumers a bundle long term, Goodman says.

Another option? Prepare for the unexpected with a high-yield savings account worth a minimum of three months of expenses. Additionally, Goodman recommends investing in retirement accounts and saving for a child’s college tuition with a 529 account. Consumers may get a tax deduction for their efforts.

Lastly, the American Institute of Certified Public Accountants has launched 360 Degrees of Financial Literacy (www.360financialliteracy.org)–a free Website offering key strategies, tools, research, and articles on managing personal finances. There is also a free weekly e-mail on savings tips at www.FeedthePig.org.