5 Tips On How to Spend Your Next Stimulus Check
Posted on March 22, 2021 in Debt
Under a new stimulus bill passed by Congress and signed by President Biden, millions of Americans will receive a third stimulus check in the coming weeks. Third-round payments will be for $1,400 per eligible person, plus an additional $1,400 for each eligible dependent. Those families who have lost income during the coronavirus pandemic will need to use their checks to put food on the table or keep a roof over their heads, whereas if you’re still fully employed and not financially distressed, consider putting your stimulus check to work.
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With many restaurants still closed and most events shut down, it’s more difficult to “waste” your third stimulus check on vacations, eating out, attending a concert and the like. So, instead of spending your third stimulus check on something you really don’t need, think about investing, paying off high-interest debt, catching up on pertinent bills, saving for retirement, supporting your community, or starting an emergency fund. It all matters, and it all needs to happen this go-round.
Here are 5 tips to make your third stimulus check work for you or help your community.
Pay off high-interest debt
If you have a large balance on a high-interest credit card, paying off the balance can be difficult. That’s because the monthly finance charges eat up your minimum payment and the balance only goes down a small amount every month. The longer it takes for you to pay off your balance, the more you spend on interest.
This process can significantly damage your financial stability, preventing you from saving money or reaching big life milestones like buying a house or retiring. Therefore, with your $1,400 stimulus check that’s landing in your bank account any day now, consider paying as much as you can towards your overall balance. With a high-interest debt, most of your monthly payment goes toward interest, so if you want to make progress toward paying off the principal, you have to increase your payments.
You’ll be more successful if you pay the minimum on all your other debts and put all your extra money toward a single high-interest rate debt. Once you’ve paid off one debt, you can work on the debt with the next highest interest rate, and so on, until you’ve paid all your debts. That stimulus money will help considerably with this action taken.
Catch up on utility payments or other bills
Your stimulus check can also be divided up into a few chunks of money to help you make partial payments on your rent or mortgage, in case that is an option that you need to pursue. If you cannot make your full rent or mortgage payment, talk to your landlord or lender as soon as possible. Many lenders, utility companies, landlords and insurance companies are offering forbearance programs and relief efforts to help people who are struggling to pay their bills during this unprecedented situation of sudden economic shutdown and mass unemployment. Don’t be afraid to call your landlord, gas and electric company, cable company, telephone service, and bank or loan issuer to ask if you can work out a different payment plan.
Whatever is happening with your immediate financial situation, the stimulus funds will give you some extra cash on hand. If anything, having this money can help you weigh your options and buy some time.
Save for retirement
Socking away money for retirement is always a smart move. You have until April 15, 2021, to invest in a traditional or Roth IRA for 2020, where the maximum contribution for a 2020 IRA is $6,000 — $7,000 if you’re 50 or older — so you can stash your entire stimulus check there if you don’t need it for anything else.
You have until April 18, 2022 to invest in an IRA for 2021, but the sooner you invest, the more time your money will have to grow. If you already have an emergency fund of three to six months’ expenses, you have no urgent debts and your job is secure, you may want to use your stimulus check to invest for the future.
Some examples might be:
- Traditional or Roth IRA
- Save for college
- Open an investment account
The key is to speak with a financial professional about your options and go from there. Once you’ve made the decision to save your stimulus money, leave the rest up to someone who does this kind of thing for a living.
Start or add to an emergency fund
While the unemployment rate is lower now than it was earlier in 2020, many people still don’t feel very comfortable about their employment situation. Even if you’re working now, the pandemic isn’t quite over yet. You could still experience a drop in income if your hours are cut, you’re quarantined, or you have to stay home with your children because their school buildings are closed.
Ideally, you should have at least three to six months’ worth of living expenses in a savings account. If you’re not there yet, your third stimulus check is a good start. Online banks usually offer the highest interest rates on savings accounts, and some come with no minimum-balance requirement or monthly fee.
In times of uncertainty, you may feel an extra sense of calm and confidence by having cash in the bank. If you’re married with two children, you could potentially receive $3,400 from this stimulus program ($1,200 per adult and $500 per child). That’s a decent chunk of money to add to an emergency savings fund, even if you have to divert some of the money to immediate expenses and bills.
Support local businesses
Whether you live in a small town or a large metropolis, surely the neighborhood businesses have been impacted by the pandemic. If you find yourself wanting to support your local community and help get them back on their feet, buy a gift card for a local restaurant or other small business that has been forced to close or scale back their operations. That will provide the business with much-needed cash during the shutdown, and you can use the gift card to treat yourself to a nice meal or massage when the pandemic is behind us.
It also shows you care. Expressing empathy and compassion by giving away some of your stimulus money for local businesses who have been sorely hurting during the last 12 months is an excellent way to let them know how much you appreciate all they’ve done for you during the good times. The service industry was the hardest hit, therefore give back and score some karma points in the process.
Best Ways How to Spend Your Next Stimulus Check
The best use of your stimulus check depends on your financial situation and your immediate, medium-term and long-term financial goals. If you have recently been laid off from your job or have experienced a loss of work hours or another loss of income due to the COVID-19 crisis, then you likely will use this stimulus check to help meet your immediate financial needs. But if you are still employed and receiving your usual paycheck, this stimulus money could potentially help you shore up your savings, invest for the future, or help others immensely.
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