Tuesday, May 26, 2009

Spend it wisely

On Mondays, we post a question from a reader and a response in this space. Due to the Memorial Day holiday, we delayed this for a day. If you have a question you'd like to see answer here, post it in the comments section.

QUESTION: I'm going to get $250 from the government this year as part of the economic recovery package for those who receive Social Security benefits. It's not that much money - but how could I spend it wisely?

ANSWER: You can bet that more than one person has already charged something on a credit card thinking they’d be able to pay it off when their check comes. This is foolish. First of all, interest will accrue until the check arrives. And let’s be honest. $250 is just not that much money. But still, it’s fun to think about the ways you might use it to improve your life.

When the money comes, there are some great ways to spend it, and some not-so-great ways. I’m going to cover a few of each.

The best way to spend it

The very best way to spend your check is by paying off high-interest debt. Credit card debt should be the first to go, and the money you’re going to get will help you meet this goal. If you have payday or title loans, pay those off first and foremost and get the heck away from them.

The next best way might be to not spend it at all, but use it as the base of an emergency fund. Everyone should have three to six months of expenses tucked away in case of an emergency. A savings account can also help you manage life’s many other challenging surprises.

Another solid option is charitable giving. A church, a non-profit agency or other such entity could really benefit from such a gift. If the gift is to a qualifying non-profit, you can write it off of your 2009 taxes.

Thinking to the future, you might invest in your grandchild’s future education. Use the money to seed a college fund.

Estate planning services could be a way to spend that check that could vastly help your family. This isn’t fun, I know, but you need a will. Everyone does. If you spend your check with a solid attorney who can help you draft a will, it will save your heirs a lot of time and energy in the future. And when you’re done, tell your family. A will that no one knows about can’t do its job. Also think about creating a Power of Attorney document to give a spouse, child or loved one the power to make decisions for you in the event of an emergency. And again, tell someone you’ve done this.

The not-so-great ways to spend your money

Vegas is not really my scene. All I can see at the tables and slots are people carrying around their life savings for what is usually not much return at all, if any. Gambling is about the worst use of the money I could imagine. Same goes with lottery tickets.

I’m also not much for new televisions, or other luxuries, if you are already in debt. It’s just not wise to spend money on things you don’t really need when you’re paying double-digit interest on debt.

$250 isn’t that much. But it can be significant, if it’s used wisely.

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