Stimulating the Economy...

You've probably heard by now that a tax rebate is going to be issued this year. It's also referred to as the 'Economic Stimulus Package'. Single filers will receive $600, Joint filers will receive $1200, and an additional $300 is added to that for each child in the household. These numbers assume you make no more than $75,000 (individual) or $150,000 for joint filers. Low-income filers must make at least $3,000 to receive a rebate, which is $300. Those who make over those limits will receive a rebate, but it will be reduced by 5% for every $1,000 over $150,000 and it is capped at $174,000


So, what do you have to do to receive this money?
You must file a 2007 income tax. If you do not file, you will not receive the rebate.
Then you wait. The rebates are expected to show up as early as May, so it may be beneficial to file early this year instead of waiting until the last minute. Then again, it may not make a difference to file early. Just be sure to file your return and you'll be ok.

"I'm getting a rebate, what should I buy to stimulate the economy?"
Whoa there, cowboy. Not so fast. Let's remember that the politicians in Washington are calling this tax rebate an "Economic Stimulus Package" so that you'll feel inclined to spend it. But that's not your job. This money should be used to help you get out of debt.

Here's some tips on what to do with it:

• Get current on any outstanding debts that you've fallen behind on.
• If you haven't already, build up an emergency fund.
• Pay off those credit cards, or throw as much as you can at them.
• Refinance your house and use the rebate for closing costs.
  

It can also be used to invest in 401K, IRAs, or another investment vehicle. Do this only if you are out of debt, in which case I'm not sure why you're reading this blog!

So while Washington may want you to stimulate the economy, you should use it to stimulate your own household instead.

The Emergency Fund

I can't stress enough how important this is. If you haven't already, it's time to give up that credit card you have "in case of emergency". Why? Well, just ask yourself which credit card was your "emergency card" before this one, and why aren't you still using it for emergencies. Chances are the answer is, "because I reached the credit limit".

So you need an emergency fund, because let's face it - stuff will break on you.

You need to save between $500 and $1000 and toss it in a savings or money market account that doesn't charge you fees. If your bank can't help you, go to a credit union. In my opinion you'll get the best rate without fees. Paying a bank fees for using your money is ridiculous. Keep in mind the idea here isn't so much the rate of return - it's a safety net. This will keep you from reverting back to a credit card to get the car repaired or a broken window replaced.


If you use it, put it back.

Don't forget to replenish your emergency fund after you use it. Go back to paying the minimum on your credit cards until it's replenished. After your emergency fund is back to your set amount, re-attack those credit cards with a vengeance.

Where do I start? -- Part I - The Budget

Ok, so you pulled out your bills and went into shock. After you regained consciousness, you're scared, frustrated, or maybe just really hacked off. You're overwhelmed. It's OK. Sit down, relax, and let's get started.

First, You can do this! Second - Getting out of debt will be hard.

I'm not going to lie. It's pretty easy to swim in debt, but no one likes to get out of the pool. But let's take it slow - we need a plan. It's time for a budget. I know - I said the "B" word. But it's not as hard as you think. Grab a paper and a pen - I'm not asking you to be an accountant here! If you're married, get your spouse involved.

On the left side of your paper list the total household income. This is everything coming in. No secret stashes, no lying here. You only hurt yourself if you do.

On the right you list your expenses. Start with the necessities first, then list your debts from smallest to largest. The order of the listing is going to be the order these get paid. Example categories are Food, Shelter, Clothing, Gas, Car Payment, Credit Card #1 , etc. Also include a category for yourself - Entertainment or fun money. If you don't reward yourself, you encourage failure. Just make sure you put it in the budget.

Start totaling. If your expenses outweigh your income, you're going to have to trim something, or someone's not getting paid. Make sure your categories aren't out of hand. If you're single - $300 is way too much for food. On the other hand, a family of four will need much more than that. So budget accordingly.

That's it. Now all you do is tweak your categories and see where you can save. I'll post some tips for trimming the budget in the next article.