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By now a majority of Americans have received their stimulus payments from the IRS.  If you're wondering what to do with that money, I have some suggestions.

1. Start an Emergency Fund.

   Everybody needs an emergency fund.  Dave Ramsey recommends at least $1,000 until you pay off your debts then you need 3 to 6 months of income.  I recommend you put as much as you can into an emergency fund.   In reality $1,000 is a good start but $10,000 should be the minimum.  I think $20,000 is a good maximum.  At that point you'll want to put your money into something that gets a better return.

2. Pay Off Your Credit Cards

   If you're not paying off the full balance of your credit card every month, you're making an expensive mistake.  According to the American Bankers' Association, the average family has $8,000 in credit card debt.  Yikes!  If your interest rate is 18% you're paying over $1400 a year in interest charges alone.  If you're excited to get $1,200 from the government, wouldn't you be more excited to save $1400 a year?

3. Make an Extra Mortgage Payment

   I know you love your mortgage and you want to keep it for 30 years, right?  Maybe not?  Well the only way that mortgage is going away is by you paying it off.  Forget about the tax deduction that most people can't take, that's a real estate industry marketing ploy.  Paying off your mortgage frees up your cash flow for other things.  Imagine how much you could save and invest if you paid of your mortgage.

4. Make an Extra Car Payment

   Do you have a car payment?  Number one, may I say that's stupid.  Now we all know how dumb it is to make payments on depreciating assets like vehicles.  We should always pay cash for vehicles even if we can only afford a $1,000 clunker.  I've been there, I bought a car for $500 and drove it for 2 years.  I'll never buy a new vehicle.  I don't have sucker written on my forehead.

5. Start a 529 College Savings Plan

   Do you have children?  Do you want to send them to college?  How about starting a 529 college savings plan for them?  Your money grows tax free until you take it out for college.  That's a fantastic benefit.  Oh wait, you bought a big screen TV instead?  Tell little Johnny he's going to have to pay for college because you wanted to watch football on a big screen TV.  Thanks Mom and Dad!

6. Fund a Roth IRA

   Roth IRA's offer tax free retirement savings. As my financial adviser put it, "they are a gift from Uncle Sam." While I don't think Uncle Sam is being generous letting me keep my money, I do think that Roth IRA's are great. You put in your after tax money and it grows tax free until you take it out at retirement, at which time you don't owe any tax.

These are great ways to spend your stimulus check or any other lump sum payments you may get (tax refunds, inheritance, etc). If you can resist the urge to cash your check and spend all the money in one crazy shopping spree, you'll find that even a small amount of money is enough to start you on the path to financial independence. Or you could blow it all on booze or Transformers. A laptop computer is a little bit better. The choice is yours.

So what did you do with your stimulus payment? Did you spend it or save it? Leave a comment and let us know.

Tags    Economic Stimulus    IRS    Retirement    Savings    Stimulus Package    Stimulus Payment    Taxes

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