- Pay down debt. Our only debt is our home mortgage. The tax rebate could be used to pay down principal and accelerate the pay off of the loan. If we had credit card or other consumer debt, we would pay against those amounts first.
- Put in tax deferred savings. The tax rebate can help fund our IRA accounts. We've already made our 2007 contribution. The rebate would give us a head start on our 2008 contribution.
- Add to college savings accounts. We have been making regular yearly contributions to our three year old's college 529 plan. Since we have already made the 2008 contribution, we could put the tax rebate towards the 2009 contribution.
- Increase savings for a future purchase. We prefer to pay cash for our major purchases, by saving the money and paying lump sum. We have a couple of home improvements for which we are saving. Also, we will likely replace a car in the next five to ten years. The tax rebate would accelerate reaching our savings goal in these areas.
- Boost general funds. Since we retired in our forties last year, we no longer have a separate emergency fund and expense fund. It is all one general fund, and we keep short term needs (e.g. about three years) in cash, bonds or CDs. If we were still working, I would add the tax rebate to our "emergency" funds.
Our goal will be to avoid the "impulse purchase." I'm sure there will be a lot of "tax rebate" sales in May, 2008. Flat screen HDTVs, new cars or car leases, and vacation packages will all be competing for the tax rebates. Unless the item is already in our plans, we won't be spending money on it.
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This is not financial advice. Please consult a professional advisor.