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Posted on May 05, 2008

Approximately $150 billion dollars will be distributed to American consumers starting this week, as part of a plan to jump start the economy. Many retailers are gleefully anticipating a bump in consumer spending, but will consumers save or spend?

According to the National Retail Federation (NRF), consumers are expected to spend an estimated $43 billion of the stimulus package dollars on retail commodities, and only $20 billion will be saved. However, a recent survey by H&R Block found that nearly half of Americans – 45 percent – plan to pay bills and only about 16 percent of Americans will splurge on such things as electronics, jewelry and vacations.

If your stimulus plan includes a bit of splurging, consider a little advice from the experts at Money Management International:

1. Determine the treat. Make sure your splurge is worth every penny. Start by making a wish list and prioritize. For each item, ask yourself if it is something you will use, enjoy, or remember this time next year.
2. Don’t leave any goodies on the table. Retailers are offering great incentives to lure you into spending your rebate in their store. Do a little research and make sure you’re getting the most bang for your buck.
3. Stick to the rebate. Don’t allow this spurge to cost you later. If your stimulus amount is not enough to cover the cost of your splurge, consider having a garage sale, collecting spare change, or working overtime to come up with the extra cash.
4. Spend now for big savings later. Consider using your stimulus check to upgrade your appliances to energy-efficient models that can lower your electric, gas, and water bills and save you money in the long run.

On the other hand, if the looming recession has already taken a bite out of your pocketbook, and you plan to put the money where it will give you the most long-term benefits, consider the following suggestions:

1. Pay down debt. Accelerating your payments is an easy financial decision. A $2,000 credit card balance with an 18 percent interest rate could take nearly 12 years to repay when making only the minimum payment.
2. Save for emergencies. Americans are currently saving less than one percent of their disposable income. That means that any unplanned expense could turn into a financial emergency. Placing the money in savings is an especially wise plan in times when job security is uncertain.
3. Prepare for the holidays. Too many people get in over their heads during the holidays and being in debt is no way to begin a new year. By saving your boon for holiday purchases, you can take advantage of lower prices and avoid post-holiday debt.
4. Grow your money. The eighth wonder of the world is compound interest. Depositing $1,200 into a savings vehicle that earns 8 percent interest can really add up. After 10 years, your $1,200 will have doubled to more than $2,500.
Whatever you decide, remember to take the time to revisit your overall financial plan. Having a solid roadmap will take the guesswork out of future financial decisions.

“Change may be hard, but the payoff can be priceless,” said Cate Williams, vice president of financial literacy for Money Management International. “Taking these steps will not only improve your financial situation now, but will provide a solid financial foundation to benefit you throughout the rest of your life.”

Visit FinancialLiteracyMonth.com for more helpful steps to achieve financial wellness.