President Bush recently announced an economic stimulation plan that will pay $100 billion to 117 million American families. Details are yet to be announced, but most families will receive a $600 to $1,200 check in the mail as early as this May. The plan hopes to the easy economic pains individuals are feeling from the housing crisis and current economic conditions.

How Will You Spend Your Tax Rebate?

Most people spend the rebate, which helps stir up the economy. According to the Federal Reserve, when tax payers received a rebate in 2001, 70% of the cash was spent immediately and thereby flushed right back into the economy. The remaining 30% was mostly put into savings.

Some people may see the rebate as free money, and therefore will spend it on things they could not ordinarily afford. Others will take advantage of the opportunity to help pay down their credit cards.

Savers will be happy just stuffing the extra cash under their mattress to add it to their emergency fund or high-yield savings account, while others have a goal in mind and may put it towards their fund for a family vacation or home improvements.

Those who do not have bills or credit cards to pay off may want to consider investing the money and taking advantage of the opportunities in the stock market.

For more information on the tax rebate, read 2008 Tax Rebate Stimulus Package Explained and What to Do With the Fed Economic Stimulus Package Tax Rebate, at Moolanomey.

How do you plan to spend your rebate check?

Millionaire Money Habit: Whenever you have the opportunity to have some extra cash, use it to pay off high interest debt, such as credit cards. Otherwise you have the choice to spend the money and enjoy it, or put it to work in an investment that will turn that money into more money and increase your worth. -RT

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In order to develop a Millionaire Mind, it helps to understand the habits of millionaires and simply mimic those behaviors. So let’s take a look at the characteristics and habits that are common among self-made millionaires. What are the fundamental rules that have made most millionaires their hard-earned money? And how do you develop these habits of millionaires in order to become one yourself:

1. Earn to Invest, Not Earn to Spend: Sadly most people work hard in order to pay off their credit cards and support their lifestyles. The wealthy class understand that their money is better off being put to work in order to make more money and increase their net worth.
2. Have a Plan and Work the Plan: Self-made millionaire don’t normally become wealthy on accident. They are driven to become rich and formulate a plan to get them there over a lifetime of investing and accumulating wealth.
3. Make More Money: Sounds obvious, but wealthy people are constantly seeking ways to produce additional income streams in order to put more money to work for them.
4. Understand Their Finances: The wealthy class are aware of their personal income statements, and know how much cash flow they have coming in and how much is going out.
5. Risk Takers: Measured risk is a must in order to increase your net worth. Without taking some chances, your money never has an opportunity to grow. Risk is never taken without an exit strategy and insurance to protect the downside.
6. Patience: Self-made millionaires did not become that way overnight. They understand the power of compound interest, and that consistent investment effort will be rewarded.
7. Great Team: Wealthy people who stay wealthy surround themselves with financial and legal advisors that are the best in their class. They don’t go at it alone.
8. Involved: While self-made millionaires seek advice of their trusted advisers, they listen intently, do their homework and ultimately make the decisions. They are actively involved in creating their own wealth.

To learn how to become a millionaire and reprogram yourself to automatically become rich, go download a copy of The Millionaire Mindset.

Millionaire Money Habit: Becoming a millionaire does not often happen by accident. Becoming a millionaire, it requires planning, consistent effort and patience. Follow the fundamental rules, continue to increase your ability to understand how wealth is created, and it will be virtually impossible to not become a millionaire.

On Saturday I was a guest author at Gather Little by Little where I wrote, Should I Get a Loan to Invest, which discussed why using other people’s money can create riches. I stressed, thought, that this is a strategy that should only be considered by the experienced, well financed investors.

If you think you have a sure bet that can make you very wealthy, here are a few ways to get a loan to use as an investment.

Buying on Margin

Probably the most popular investment loan strategy, most brokerage firms will allow you to open a margin account. Since margin balances are high interest rate loans, they are generally used for short-term trading. This is traditionally how trading is done on the foreign exchange (FOREX) market.

By buying on margin, you are essentially borrowing money from your brokerage to purchase stock, which allows you to borrow up to 50% of the purchase price of the stock. So, if you want to buy $10,000 worth of stock, you only need $5,000 of your own money.

Should the stock fall though, your risk experiencing a “margin call,” in which case you are forced to either sell your position at the loss or add more cash to the account in order to remain at the 50% maintenance margin level. Since your brokerage can liquidate your positions when you are over your maintenance margin level, you are susceptible to quick losses in a volatile market.

Home Equity Loan

A home equity loan allows you to borrow up to 125% of the appraised value of your home (minus the balance of your existing mortgage). So, if your home is worth $200,000 and you owe $100,000 on your mortgage, you can qualify for a $125,000 loan. These can be attractive, low-interest loans.

The risk is that your home is the collateral supporting the loan. If your investment takes a dive and you are unable to repay the loan, you lose your home.

Using Your Credit Card

Most credit cards hit their customers hard with rates on cash advances; generally in the 20% range. Every once in a while you can find an offer for attractive 3-4% cash advance rates, but this is rare.

If you stumble upon an offer like this, you may want to consider the terms, such as how long the offer is good for. Considering the stock market historically returns 10% a year, this could be a viable option to infuse money into an index fund. This return is assuming a 10-year investment horizon. Year-over-year the market returns are far more volatile, with some down year, some up years, and some flat. Over time though, the stock market evens out to roughly a 10 percent annual return.

Millionaire Money Habit: Taking out a loan in order to invest is generally not a recommended strategy. Yes, you can leverage other people’s money in order to make money, but please consider the risks and the worst case scenario. Always consult with a certified financial planner before considering such a risky venture. -RT

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