I know you’ve been there. You get a windfall and as soon as it comes there’s an unexpected expense that swallows up the windfall. Karen Blumenthal at the Wall Street Journal had an entertaining piece today about what she calls The law of household economics. She says, perhaps that’s why the well-intentioned Americans who said they planned to save their stimulus checks or use them to pay down debt are spending them instead.

Just yesterday, I met with Richard Davis, CEO of US Bancorp, who said the bank certainly isn’t seeing any of our stimulus checks coming its way– either in the form of savings deposits or larger credit card payments.

There’s another effect plaguing our household. I’ll call it the pre-windfall spending effect.

You know you’re about to get a lump sum. So what do you do? In the months or weeks preceding, you feel a little more flush and spend just a little bit more on things. For one friend, it’s high quality cheese. For me, it’s an outfit here, a pair of shoes for the kids there, a dinner out, a week without packed lunches.

Until, bam! The check arrives along with the credit card bill and you find that half of your windfall is heading back out the door.

To push that depressing thought out of your head, read Joel Stein’s latest LA Times column, which ran in our paper today. The funny guy doesn’t normally take on the markets, but today, he talks about profiting from the next bubble. What will be the next bubble, he wonders, and asks an economist for his ideas. I wonder if you can invest in chickens in a self-directed IRA?

This entry was posted on Tuesday, June 24th, 2008 at 12:25 pm and is filed under spending. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.