Between the president?s proposed stimulus package and the average income tax refund, Americans this spring could have some big money-managing decisions on their hands.
The government?s $146 billion aid package, passed Tuesday by the House and headed to the Senate, would send rebates ranging from $600 to $1,200 to most taxpayers. That would be in addition to the $2,400 that made up the average income tax refund last year, according to tax preparation company H&R Block.
So what should people do with their newfound funds?
Before booking that exotic vacation or finally buying that 60-inch flat-screen television, the first priority should be dealing with any debt, investment professionals suggest.
“First would be pay any high-interest credit card or other personal, nondeductible debt,” said Kelly Cody of Sparks-based Wealth Advocacy Partners.
The Silver Spring-based National Foundation for Credit Counseling, as well as H&R Block, also urge people to pay down balances with the highest interest rates and catch up on any past-due payments.
“Paying down debt is the No. 1 best use of this money,” the NFCC said in a statement.
Saving or investing the money is always a good option, Cody said. People should consider opening or adding to an individual retirement account for retirement or invest in a mutual fund. It?s always better to begin investing sooner rather than later.
For parents, Phil Carrasco of Hagerstown-based Cornerstone Advisors suggests opening a 529 college savings plan, an account that allows investments to grow tax-free. Plans vary by state.
In Maryland, taxpayers can receive a maximum $2,500 deduction from their state adjusted gross income annually for contributions to the Maryland College Investment Plan. The contributions must be for the purpose of education at most colleges and universities in America. Withdrawals must be “qualified” for education expenses like tuition, fees, books, supplies and sometimes room and board.
If debt, payments and savings are under control, then it?s time to think about discretionary spending ? the vacation or the TV.
“If none of the above apply, enjoy your spending as the government would like you to do first,” Cody said.
