How to Spend Stimulus Money Wisely

President Obama just signed a $787 economic stimulus package, and part of the package sends out checks to households. This eHow article will show you how to wisely spend your economic stimulus check.

Difficulty: Moderate

Instructions

Things You'll Need:

• Stimulus money
• Willingness to spend wisely

1. Consider the purpose of an economic stimulus: to get people spending. An important factor in GDP calculations is consumption, and the stimulus is designed to promote consumer spending. Unfortunately, a little bit of consumer spending often precedes a lot of consumer spending; if you spend too much money, you could end up in debt. It's important to spend your stimulus check wisely.

2. Make sure you have a good budget that outlines your needs and wants. If you didn't have this budget before, make one now. Remember, you won't always be getting checks from the government, so you need to budget for your normal income, not including your stimulus check.

3. Once you have everything budgeted out, view the stimulus check as an endowment; a one-time gift, not a source of normal income. Once you're in the mindset that your income hasn't permanently increased, you will make wiser financial decisions.

4. Figure out your outstanding balances; car payments, rent, student loans, and so on. Since the longer you wait to pay these things off, the more they will cost (because of interest), you should spend your stimulus money on the debt with the highest interest rate. This is optimal because you will save the most money in the long run. You should not spend your stimulus package on things you don't absolutely need, because the only way you can afford to buy consumer goods is by consistently earning a high income.
   
   By spending the stimulus on debt reduction, you can prevent developing personal incentive to spend beyond your income.

5. If you don't have any debt, good job! Another important factor in GDP calculation is investment. By investing your stimulus money, you can earn money for yourself without doing anything and help the economy! Keep in mind that the value of the check a year from now is (current value)*(1+interest rate), and as long as the interest rate on your investment is higher than the inflation rate, you will be making real income (adjusted for inflation).

[ludwigvonmises]

on 3/4/2009 I fear this post really misses the mark for a few reasons:1. Most importantly, these stimulus checks are not gifts nor are they endowments. The money comes from the tax-payers and is being given back to tax-payers. That is your money anyway. They would do better to simply stop taxing everything we do and buy.2. When it says "If you spend too much money, you could end up in debt," what it really means is, don't borrow money. In fact, don't spend money. That is what caused this meltdown. The people who say that consumption is the best thing we can do, are the people who do not have your interests at heart.3. The post is correct in urging you to pay off debt. Do this first, by all means, but stop there! Do not buy anything else after that. Stick your money--money which has been returned to rightful owner--in the bank. Leave it there. Capitalism only works if there is capital.4. Do not buy s