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January 24, 2008

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The government should spend some of the money on personal finance courses for the average citizen. But that won't happen because of the conflict of interest.

Am I the only one baffled by the prevailing assumption that the best thing for our macro-economy is for all the micro-economies to spend, borrow, and buy?

Once again, this is just another short term fix to a long term problem.

I'm probably going to be getting just $300, so I'm just going to put it into Prosper...

I'll believe it when I see it. I have NEVER gotten a tax refund. I've owed money every year, even after $12,000 in deductions.

I should be getting $1500 (according to today's story). I am going to stick it in my money market for a little while until I get the rest saved to buy a new mattress that my wife keeps begging for.

Since it came from taxes I paid to the IRS, it will probably go right back to the IRS, in the form of this year's quarterly estimated Federal taxes.

If I qualified for this rebate, which I don't, I would invest the money in my 401K. Interestingly, I actually heard it said a few days ago that the prevailing wisdom was higher income earners would not be getting a rebate, as they would be more likely to save the $$$ than to spend it.

It's always something!! :)

I also read that Bush's initial plan did not include people who earned below the minimum to pay income taxes. That was shot down of course.

Tell me, why are people who don't even pay income taxes deserving of a tax rebate?

Because, as Katy pointed out, the rich would most likely save it while the poor will blow it on iPods and lottery tickets and that is exactly what the politicians want.

Hmm, I see an interesting story unfolding... The money is coming out just in time for the digital switch to TV. The less prosperous will get $300 (enough to buy a converter box), and the more prosperous will get $1200 (enough to buy that HD TV).

This is just a giant government and TV industry conspiracy, so that everyone will continue to watch television.

The only hole in my theory is that these TVs and converter boxes are foreign made. Hmmm...

Does anyone know if the income limits are going to be based on 2006 or 2007 tax data? I'm curious because while I would qualify for 2006 -- I don't qualify for 2007.

If we get any money back from our taxes (a BIG if), it will go directly into debt repayment, just like bonuses do (usually minus a very small amount to "treat" ourselves - less than 5% of the total)

I am going to spend it. I don't like the fact that they are doing it but if I gave it back to them they wouldn't take it and if I never cashed it it would already be written off as though I did anyway. So I am going to spend my "half" and my wife is going to spend her "half".. I smell some American made Fly Fishing "stuff". This plan only works if most of those receiving the money dump it back into the economy and even then the benefits may not be so great.

Either that or I'll add a inflation rider to my homeowners ;)

Either to my Roth IRA or to my mortgage loan....

MonkeyMonk - It's 2007 income levels!

I'll probably "spend" it on my student loans...which is also kind of like saving money, since I'm saving on the total amount I'll have to pay back overall.

My first reaction is to save it but then I read the HDTV comment, hmmmmmm

I'm going to put it away for the house I am going to buy when the market settles down in a year or two.

I've been searching for income limits as well. I sure hope it's based on 2006!!!! Can anyone confirm?

Should've read more. 2007 it is. Ugh!

Make no mistake about it... this isn't a gift from the government. It is a redistribution from your neighbor with all the efficiency of a government operation. I'll use my refund to invest and offset a portion of the government-induced inflation which has undoubtedly taken far more than the amount of the check.

Based on 2007 income, so get those returns filed by 4/15 or no prebate for you!

We'll probably put some in our son's 529 plan and the rest in our new house down payment fund. Or use it to pay for our vacation to SF this summer.

This package is just horrible. Does anyone know how the government intends to pay for this? I suspect by increasing the budget deficit a bit more thus further devaluing the dollar. Therefore I plan to spend my money on stimulating my own "economy" by buying international stock.

I plan to buy a house this summer. This will give me a bit more of a cushion.

I have a lot of the same objections to this idea that other people have, and I've been thinking about it a lot. What I've decided on --

50% to The Road Home (Program to help the homeless)
50% to UCASA (UT Coalition against Sexual Assult).

It distributes the money to places I'd rather it would go. If what I'm reading is true and the 'rebate' will offset the 2008 taxes, I'll just eat the difference.

@EarlyRetirementExtreme:

On www.marketwatch.com a lot of people are saying the Chinese are floating the money for this rebate. Now, I don't know if this is true, or if it's true if it's like deliberately being loaned or just a function of the fact that the Chinese are basically propping up the economy anyway. In any event it gives you cause to pause.

This whole rebate thing makes me feel queasy. It just flies in the face of what we pf blogger types espouse -- taking responsibility for being fiscally sound.

I am not sure if I'll get it. I'm right on the cusp of the upper limit with my AGI, but the reports about it seem convoluted enough that I am not quite clear what it takes to "qualify".

I thought about the whole HD angle too -- actually that whole HD thing makes me mad enough that I'm tempted to tell TV to go take a flying leap and turn my TV into a glorified DVD player. Just remember -- buying a TV is really going to benefit the Chinese economy, not the American one.

OH -- and if I do get it I'm going to make an extra payment on my student loan. And brace for the tax hit next year.

My first thought is disbelief....

My second thought is WOOHOO high interest savings account / stock split!

It seems like a waste of money by the government when I could see a million better uses. Its just mind-boggling that the government would go into debt like this when there's so many better uses for the money that aren't just psycholigical

$600 isn't much and will go to pay off any bills that month and maybe a little for fun money...probably a video game or something to that effect. It will be fun to watch what people spend it on when everyone gets their checks and goes nuts buying stupid crap at walmart....I bet lottery ticket and casinoes will see a huge boost as well

As a homeowner worried about my finances and the economy, I'm going to spend it on things that will improve the energy efficiency of my home - maybe a separate water meter so I am not charged for sewage when I water the lawn, a programmable thermostat to help lower bills, maybe some insulation, maybe even one of the auditors who can tell me if I have some bigger things I need to do to get my home more energy efficient! What I don't spend here goes to the CC bills (past spending). But at least this way, I can stimulate the economy while trying to be smarter around the house.

Isn't it amazing that the government can "come up" with 150 billion for this and billions for the war against "weapons of mass destruction", yet they can't seem to find a fix for social security,medicare,runaway medical cost, education,or feeding poor children.Strange!

what about the unemployment? did they say no to that and is it final? Come on, there are a lot of people who can not find a job for whatever reason why not extend that part of the package. Your right it is a short term fix and it is an election year!

Unemployed??? Please...what kind of a solution is that to extend unemployment. Get a job.. and there are all kinds of them. Otherwise they just wait it out.

isanybodyhome -

What are your proposals for taking care of Runaway Medical Costs, Education and Feeding poor children? Those are all the federal governments requirement to fix?

@jewells:

Yes, the deal on unemployment is finalized. The deal is nothing is being done to extend unemployment or bump up food stamps.

This was the Democrats capitulation to Bush in order to get all us good little consumers our hot checks.

I'm not sure which party I'm more disgusted with. I despise them all.

Going straight to savings. Always good to have an emergency fund during a recession.

TO those that are repaying student loans; why? With the average student loan's interest around 4% (which is effectivly 2.5%-3% after the student loan interest deduction on your tax return) and inflation costs rising, the value of your principal is actually shrinking without you paying a dime (assuming your interest payments are made). Am i missing something here?

Kennard: in my case, it's because I can easily afford to pay extra now and even completely pay off some of our loans... but I can forsee a time in the not-so-distant future when money will be much tighter. I'd rather not have all these payments hanging over my head at that time. We are concentrating on the ones with higher interest than 4%, though.

Yes, you’re missing something huge.

Student loans can’t be escaped any other way than by paying them. You can escape credit cards and mortgages through bankruptcy in the case of some unforeseen disaster. However, the best you could do with your student loan is defer it or default on it. If you defer it, the interest keeps racking up and gets tacked on to your balance, after which point you’ll be paying interest on the interest. If you default on it the stain on your credit is harder to scrub out than bankruptcy, and you’re subject to wage garnishment down the road (plus, of course, all that interest on the interest that’s accumulated).

In addition, if you have a large enough student loan, it affects your ability to get and pay for a mortgage simply because your income availability to pay the mortgage is curtailed.

If you don’t have a very large student loan, perhaps it might not seem urgent to you. I have a student loan over $190,000. (and – it got that large due to that tricky interest-on-interest scenario while in deferment) That’s more than double my annual salary. That’s a $1,000/mo. payment I’m locked into until I’m in my late 60s.

Here’s something I figured out last night – over the past two years (that’s $24,000 paid), my balance has gone down $1,555 dollars. That’s treading water. I can’t get ahead, I’m a slave to this thing.

Now – here’s another factor of the equation. Who knows what the job market will be like in the future? As somebody nearly 40, I have two counts against me. First is that I work in an industry in LOVE with outsourcing and eliminating US jobs. If my job is taken away from me, I have no way to know that I’d be able to find a similar job – others I know in that situation have really had a difficult time getting reemployed without taking a wage cut. And the economics of the situation is just begging for serious wage suppressions in the future.

Also, I am not quite there yet, but once you’re older, it’s much harder to find a job at the same wage level if you lose one. It’s much scarier to consider being laid off at age 50 than at age 30.

And yet as it stands, I MUST be able to swing a $1000/month student loan payment until my mid-60s.

Now – want to ask me again why I’m throwing every extra penny at the student loan company?

OH -- and one other thing -- I make too much money to take the deduction for student loan interest paid.

So -- ok, I've paid $22,445 in student loan interest over the past two years -- AND I get no tax break for it. I've also paid tax on that money.

This situation is just like a mortgage -- the "freedom" of that low interest rate (mine is 4.75) is really all it's cracked up to be.

Sorry, I mean to say "This situation is just like a mortgage -- the "freedom" of that low interest rate (mine is 4.75) is really NOT all it's cracked up to be."

P.S. "the value of your principal is actually shrinking without you paying a dime."

That's a load of theoretical hogwash of the same ilk that got this country into it's current mess.

It makes no difference what the "value of the principal" does if you still have to pay the same amount every month even if your actual money supply is diminished.

It's all about the cold hard cash -- how much you bring in the door, how much you keep, and how much you owe your debtors.

Another thing that just popped into my head.

With a mortgage, at the end of the mortgage you still have a house.

With a student loan payment, at the end of paying it off you have nothing but the degree.

NOW -- don't misunderstand, I'm not knocking the education or the degree. However, at some point all of that really becomes irrelevant. It isn't for me now, I'm still in the workforce and so right now it's good to have it.

However, at the point where I am 60+, the degree isn't going to mean much nearly so much to me. I'll be looking forward to my immanent departure from the workforce (hopefully). At least with a mortgage, I'd still have something of value -- a house to live in or sell. But I can't sell a degree to somebody just because I'm done using it. And the degree itself won't keep me warm or fed unless I eat or burn it one cold night.

So there is really nothing at all to gain by letting a student loan linger. Sure, there is the opportunity cost of investing during the years you pay down the student loan. Yet if you have a consolidated, high balance student loan, you end up paying just an obscene amount of interest over its lifetime and at the end -- have nothing to show for it.

Sorry to hijack the thread FMF. This got me all worked up since I've been looking this week at my plan of attack for getting this thing paid off before I'm too old. Please pray for my plan for killing off my evil student loan.

Another idea from the Wall St. Journal:
"The real value in the stimulus check is the chance to refinance a big mortgage."

Of course, this implies advice that one should use the stimulus check to pay for cost of refinancing, to benefit long-term from lower interest expense.

Source: WSJ online front page teaser for January 25th column by Brett Arends, titled "Don't Spend Your Stimulus Rebate!"

The full article notes that stimulus package also proposes an increase in limit on "conforming loans" (federally subsidized) above the current $417,000 cap, which could mean a 1% or more break for those with jumbo mortgages...but I doubt too many readers of this blog have such a monstrosity! ;-)

Link to full article: http://online.wsj.com/article/SB120119972332913969.html?mod=hps_us_editors_picks

(Note: subscription required.)

"Does anyone know how the government intends to pay for this?"
I am afraid it may come from taxes of those of us who are deemed "too rich" to get the stimulus check. Now, had I been eligible, it would probably just add to my savings, but I could've invested it and "stimulated the economy" this way... But as I'll get nothing, I get to wonder about the same question.

I'll be using mine to pay off student loans. Sounds fun doesn't it.

It sounds like you all have no idea or appriciation for the country you live in. We do have our problems, and will continue to have them, but bashing your government when they are actually trying to help the middle class doesn't make any sense. Talk about being short-sighted! The more you tear down your nation instead of taking some personal responsibility and supporting it, the more you will weaken our great nation. Has anyone ever traveled and actually seen the condition of most of the rest of the world? That's not somewhere we want to go. Think it over, and be gratefull when you spend your check.

Ryan - That's crazy talk!! I think people are taking personal responsibility by voicing their concerns. Government is NOT always right! While I agree that we should support our fellow citizens and country, there are some major flaws in the idea that throwing money at the problem will solve things. We do live in a great nation, BUT remember what makes it great it that we can criticize it. After all constructive criticism helps make it better for all.

PS I hear ya on the student loans! $125000 paid off in 2034. Will have spent way over $1 million by then. :(

Correction - that should be for Tanya. Sorry Ryan!

OMG! Here I thought I was bad with my student debt....I was roped for 60G's!!! I'm 34 and I ask why am I paying this, I can't even get a job in my field. How am I to save for my son's education so he don't have the same issues....Somedays I think...well I will default and do w/o for the rest of my life and take my payment and invest it for his future education!

I think I will put half into savings/retirement/stock and might do a couple of home fixes.

But on the real here.....

$190K and $125K in student loans? Holy crap.

Combined you must have at least 4 bachelor, 3 master and about a dozen certificate programs to show for it, right?

The tax rebate checks under the Bush administration’s economic stimulus plan won’t do any good if people simply put them in the bank.

Last week, an online article in the Wall Street Journal claimed that we need to save more money – even if the interest on the savings won’t keep up with inflation. This same article also restated the obvious: “we live in a culture fueled by spending and credit.”

This is double talk and misses the whole point of why America is headed for recession. Wealth is created with credit. The government knows it, the banks know it, corporations know it and the wealthy know it. With credit, there is access to money to spend which increases corporate earnings, which increases tax revenue, both of which provide jobs and, therefore more income for workers to spend which continues this profit cycle.

When you remove access to credit, spending decreases which means earnings drop, which means jobs disappear, which means people stop spending and the problem gets worse and worse. This downward spiral is the recession the government is trying to thwart with the stimulus checks.

If you, and everyone else, takes their $600 average family rebate check and sticks it in the bank then no one is buying the products and services you, or your company, sells to earn the money to pay you your salary. When you lose your monthly income and can’t pay your bills, that is when you end up losing your home and your security.

If you, and everyone else, stops spending then there won’t be much left of Corporate America. People in other cultures have learned to do what North Americans seem to be ‘too afraid’ to do; that is, find ways to earn a living besides going to work for someone to get a paycheck. Just look at the growth of micro-lending companies in India as people start businesses on even less than what the average American is getting in his or her “stimulus check”.

If we don’t wake up and learn how to earn an income that pays for the freedoms and luxuries that we’ve bought on credit, then being broke will be the least of our worries – it will be our freedoms we’re losing as emerging, strong foreign companies and banks who already own more than half the U.S. debt move in to take over struggling American ones.

Saving money is what people do when they are afraid of losing – not when they expect to win. It comes from the scarcity mentality that keeps people from stepping out and finding ways to earn the income they need to live, the way they want to live.

North Americans are able to start and run a business of just about any kind using credit. We can even use that money to invest in a variety of wealth building ventures that others have started – both of which create more income which enables more spending.

If you had planned to invest your stimulus check in a growth mutual fund or stock, your investment returns would give you about 7% as suggested in the Wall Street Journal article. On a $600 stimulus check that works out to only $3.50 a month. However, without spending, those returns would drop because the companies wouldn’t be earning the returns they had in a strong and growing economy.

For $600, you could buy a bolt of cloth and make dish towels and your profit would be much more than $3.50 a month. Make cookies, make anything and sell it! Alternately, if you don’t know how to sell what you’d make, then take a course to develop your financial and entrepreneurial skills.

Please spend the money from your stimulus check, and while you’re doing it, make sure you start learning how you can earn even more money on an ongoing basis.

And, be sure to pass on this important message!

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