Money-wise ways to spend Congress' relief

By KARIN PRICE MUELLER
STAR-LEDGER STAFF

ANALYSIS

In a couple of months, most of us will get a check from the government, thanks to the economic stimulus package hammered out this week.

The president and lawmakers want us to spend the money on that high-definition TV or iPhone to help the economy.

But let's get real.

We all want to see the U.S. economy flourish, and we Americans love to buy new stuff. But rather than use the funds to help the country's economy, here's a better (albeit less spine-tingling) idea: Help your family's economy.

"If you feel the urge to spend, I would say take 10 percent of the refund check and spend it on whatever you please and have no regrets," said Paul Knodel, a certified financial planner with The Knodel Group in Princeton. "With the other 90 percent, you should think longer term and have the money work for you."

Here are five ways you can use the money to better your family's financial standing.

1. REDUCE CREDIT-CARD DEBT
If you're like most families, you haven't yet paid off the bills from all those holiday presents. Maybe you were even carrying a balance before the holiday spending season kicked off.

Nearly 37 percent of credit-card holders have more than $10,000 of non-mortgage debt, while nearly 50 percent have balances of less than $5,000, according to myFICO.com, the consumer division of Fair Isaac, which issues credit scores. Use this money to make a dent in your high-interest balances.

2. FUND IRA
This year, you can sock away $5,000 in a Roth or traditional IRA. Your government check won't be that big, but it's a start.

If you invest $600 at an 8 percent rate of return, you'll have $6,561 in 30 years. If you set aside $1,200 at the same rate and time horizon, you'll have $13,123 — a nice chunk for a one-time investment. Remember, investors over age 50 can save an additional $1,000 "catch-up" contribution.

3. SAVE FOR CHILD'S COLLEGE
While your rebate check won't fully fund the tuition bills, it could take care of room and board expenses, textbook costs or other items when your brood matriculates.

4. DON'T FORGET EMERGENCIES
The pros say you should have three to six months' worth of expenses in a safe account such as a money market fund.

Consider opening a safe, high-interest paying account such as those offered by Emigrant Direct.com or ETrade.com, which according to BankRate.com, have some of today's highest interest rates.

5. INCREASE LIFE INSURANCE
Life insurance is the cornerstone of every solid financial plan or at least it should be. If you're in good health, and often, even if you're not, you can buy a reasonably priced term insurance plan that would give your beneficiary a check should you die while the policy is in place. A quick trip to Accu quote.com found a healthy, nonsmoking 35-year-old woman can get a $500,000 20-year level term insurance policy from a highly rated company for between $245 and $320.