Ways to spend your government bonus check

WASHINGTON (Reuters) - Ooh, a bonus! Washington wants to send you an extra $500 to $1,200 as a way of bailing the nation out of its housing/credit/stock market/energy/currency woes.

From a macroeconomic view, that may be asking a lot of $500. But from a micro point of view, it could be very nice for your family.

The trick is to make the most of it yourself. That may entail some selfishness -- and not of the "I want a flat screen now" variety.

Review your family finances and see where that extra cash would serve you best, even if it's not the spending spree Washington is hoping for. Here's how.

-- Don't spend it before you receive it. That's probably the most important advice. With the Senate and the House still competing over which stimulus package to pass, it's not entirely clear who will get the money and who won't -- or how much they'll get. The House package cuts people off if they make more than $75,000 (individuals) or $150,000 (couples), or if they are living on Social Security retirement benefits. The Senate would send a check to everyone, even the wealthy and pensioners, but the checks would be smaller. Right now, your kids are worth another $300 each.

-- Consider the stimulus check together with your tax refund. The average refund last year was $2,548 and it should be similar this year, says Michael Eisenberg, CPA and a spokesperson for the American Institute of Certified Public Accountants financial literacy campaign. You'll probably get both checks around the same time. Putting both together could give a family of four almost $4,400 to do something with. That's a nice chunk of change.

-- Pay down your credit card bill. There is simply no better place to put your money. If you have a credit card balance, it's like you already spent your stimulus check before you got it. Now repay that loan and save yourself 15 percent or more in interest payments. You'll sleep better, especially if the bonus check wipes out your balance.

-- Multiply the tax advantages by depositing the check in a tax advantaged retirement account. Use it to establish or fund an existing Roth IRA. You won't get a tax deduction now, but some year, down the road, you'll reap tax-free earnings from that account. How much? If you put $4,400 in a Roth earning 8 percent a year and never add another penny, you still would have roughly $44,200 in 30 years. And if you really need to get at that $4,400, you can withdraw it whenever you want, once the account has existed for 5 years.

-- Two words: College fund. It's not getting any cheaper. And the more money you have when your kids are ready to go to school, the more choices they will have about where to go. And the less debt they'll graduate with. You can seed a tax-deductible 529 plan or just put it in a savings and investment account earmarked for tuition.

-- Use it to buy your next car. Deposit your bonus in a bank certificate of deposit or high-yield savings account, so it will be ready when you are. That's money you won't have to borrow next time. Don't use it to pay down your current car loan or your mortgage, unless your interest rate is high -- over 8 percent for either one. You're better off using it to build funds for your next expense.

-- Invest it in the stock market. Prices are down, right? You'll never buy at the peak if you buy while the market is selling off. And in 10 years or more, you'll be very happy to own some shares of something good. A low-fee index fund takes almost no research or effort; send in the money and watch it grow.

-- Invest in yourself. You say you're well positioned on that whole checklist and you really want to spend the money? Fine. Spend it on something that will make you more productive or wealthy going forward: A language or business class, a set of good tools, a sewing machine or garden tiller, or an appointment with a top-notch career counselor or financial planner. That's spending AND investing. And nothing's more patriotic than making your government check multitask.

(Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern@aol.com)