Quickly, the tax rebate (if passed by Congress) looks to give up to $600 to singles, $1200 to couples and $300 to qualifying children assuming certain requirements are met.
- If single and earned income greater than $75,000, every $1000 over subtracts $50 from your rebate
- If married and earned income greater than $150,000, every $1000 over subtracts $50 from your rebate
- If single and earned income greater than $3,000, you get the higher of $300 or the amount you owed in taxes (not to exceed $600)
- Deductions like 401(k), Traditional IRA, Health Savings Accounts, etc. do not count to reduce your income for the rebate
Here is what I think you should do with the money:
- Pay off credit card debt. A $600 check will save approximately $90 in finance charges at 14.5% on the year. For 17.99% and 21.99% that number jumps to $110 and $132 respectively. A $1200 check will save approximately $175 in finance charges at 14.5%.
- Save the money in a Roth IRA. $600 growing in a 4% APY CD from now until you turn 59.5 (let's say 25 years) will be worth $1,600 which you get to take TAX FREE. That same $600 in a mutual fund earning an average of 7% will be worth $3,250. These numbers jump the earlier you start. $600 earning 7% for 35 years instead grows to $6,400, more than 10 TIMES the original amount.
- Save the money for down payment on a house allowing you to leverage tax deductions for home mortgage interest in the future
- Take a trip.
I throw the last one in there because many people are guilty of not giving themselves a good break away from normal life. I want to take more trips, and I spend far too much time at work as it is. The memories from travel expeditions are often worth much more than the paltry sum spent on a reasonable vacation.
DO NOT BUY:
- iPod / iPhone
- Plasma/LCD/DLP TV
- Playstation 3/XBox 360 /Wii
- MacBook Air (or other non-basic computer)
If you can afford these things with the money you've saved up for such luxuries (don't kid yourself - those things ARE luxuries) then fine. Your tax rebate should be go to something useful in the long term.
Of course this legislation hasn't been passed yet, so we'll have to keep watching.
This blog is NOT financial advice. I am not a financial guru. I do not speak at seminars. I do not write books (yet). I am not a Certified Financial Planner (CFP) nor am I a Certified Public Accountant (CPA). I do not even have a business degree!
This blog is about MY money, usually focusing on how I spend less of it, how I invest it, and sometimes how I make more of it. This is that neighborly talk you have about money. Sometimes the advice is sound. Sometimes the advice is stupid. You judge that for yourself. What works for me may not work for you. This is an open discussion about my financial life and what I would do in certain situations. Agree or disagree, leave comments and I will respond to them or write further entries regarding them.
My name is Jason. I am 24 years old. I graduated with a Bachelor of Science in Computer Science, but I have an interest in money and things related to it. I am currently employed full time and single (from a financial standpoint). I want to know how to earn more of it, save more of it, protect it, invest it, avoid taxes, etc.