For many people the stimulus check arriving in the mail or our bank accounts comes at a much-needed time. Whether you are fortunate to be working or not, it is important that we maximize how we spend the stimulus check so it benefits you the most. Below are simple 5 ways to get the most from your stimulus check.
How Much Money Will Be In Your Stimulus Check
According to the IRS website eligible individuals will receive $1,200. Two eligible individuals filing a joint return with receive $2,400. Per qualifying child, you will receive an additional $500 payment.
To determine your eligibility please check here.
Admittedly, $1,200 isn’t that much, but it likely covers most of your rent or mortgage payment for one month assuming you don’t live in a high cost of living area.
For a family of four though you will be getting $3,400 which is a good chunk of change. The last thing we would want to do is mismanage this money.
If you have not received it yet, you can check the status of your stimulus check here.
How To Get The Most From Your Stimulus Check
Each of us are in a different situation, but by following the steps below we can identify where it is best to put the money. Keep in mind that we are trying to maximize your stimulus check. What might seem simple can have a profound effect on your life. In fact, if take this approach with any extra money you have you will be more than OK.
What you won’t see here is suggestions on vacations or gadgets. As much as you deserve a vacation or new phone, when the economy is bad and no one can truly say their job is secure, we must prioritize what is best for ourselves and our families.
Also, it is extremely noble to want to stimulate the economy and support other jobs, however, you must take care of your household first.
There may or may not be guilt over how to spend the money received due to having kids. Any of the steps below will not only benefit you, but also your kids as they rely on your income. You could earmark money towards them, but I would focus it within the parameters below.
1. Housing and Utilities
The first rule of any paycheck or income is to cover your housing and utilities first. If you have recently lost your job and were living paycheck to paycheck then this will be likely be where the majority, if not all your money goes.
Project out your need in future months. Don’t just stop at this month. Sad to say it but getting the economy back to how it was before is going to be a long process and we need to prepare for a rough road ahead. If you have your utilities covered this month, but aren’t sure about the next few months, put any remainder left to the side to cover future costs.
I am going to repeat this. If you have any uncertainty about future income, then you need to put this money aside to ensure that you have the basics covered.
It is also worth seeing how you can cut any unnecessary expenses during this time so you can more easily cover those basic expenses.
Related: 23 Budget Killers That Can Easily Be Fixed To Save Hundreds Per Month
2. Emergency Fund
At a minimum you should have $1,000 in an emergency fund. Moments like these, are perfect examples of why emergency funds are so critical. Was anyone really expecting a pandemic to affect things like this just a few months ago? There are unforeseen events that will occur in our lives that we must prepare for.
Ideally, you would have at least 3-6 months of expenses in an emergency fund. If you already have $1,000 safely set aside then I would consider beefing it up to 3-6 months of expenses.
Unfortunately, the reality is that roughly 60% of Americans cannot pay for a $1,000 emergency per a Bankrate study. So, if you find yourself in the same boat you certainly aren’t alone.
The primary function of an emergency fund is to keep you out of debt when, not if, an emergency pops up and you can’t cover it in your monthly expenses. This is a big emergency for many people. Even if you are still working you must see the importance of having an emergency fund.
Now is your perfect chance to create one or to boost yours up and you will thank yourself later.
Where Do You Keep Your Emergency Fund?
For both your emergency fund, and any money you have set aside for future expenses, the best place to keep that money is in a high interest savings account. Do NOT keep it in your checking account.
We need to preserve this money and ensure it is there for when you need it. If it stays in your checking account then either all, or a portion of it, will likely be spent over time reducing its impact. For this stimulus money to best serve you, it needs to be safe and secure.
As for the account itself, my recommendation would be one of the two accounts below.
They are best because they both have no minimums or fees and pay 1-2% in interest. Far more interest that you get with a traditional bank savings account.
I have an account with each so I can and do personally recommend them.
3. Pay Off Debt
If you still have money left, I would suggest earmarking this money for debt payoff. You should prioritize steps 1 & 2, but paying off debt is a great way to improve your financial outlook.
Fortunately, federal student loan borrowers (this does not include private loans) have had their payments suspended until September 30, 2020. Keep in mind that you will still be accountable for paying them off ultimately once they resume. It just provides a much-needed relief in the meantime. You can even make payments during this time which is a great way to save even more than usual.
During this suspension, federal student loans are being charged 0% so any principal you pay down now really benefits you since the resulting balance won’t be charged future interest until September 30.
Now, it is likely that you have other debts as well, so it is important that you are up to date on those payments and continue to make them. Eliminating any debt you have makes your life easier and can save you thousands in future interest payments.
Let me be very clear in this though, I am not saying to blindly pay it immediately. Even if everything is looking good for the next few months, we simply don’t know what the future has in store for us.
I really think it is smart to set it aside and wait until things stabilize before making those extra debt payments right now. Put it in that high yield savings account we discussed earlier and pay it off when you are ready.
4. Invest It
This is a fortunate situation to be in. If you have all three of the first steps covered then investing this money will pay major dividends over time.
Similar to my suggestion on debt, perhaps you don’t invest it right away, but keep it to the side until things settle down. Then you would invest it.
There are two ways that I suggest investing it.
- Roth IRA – Putting this money in a Roth IRA is a fantastic way to save for your retirement. This stimulus check is tax free unlike regular income. In a Roth IRA, all earnings are withdrawn tax free. You would basically be taking this tax-free money and turning it in to more money. A LOT more money! In fact, if you invested that $1,200 into a Roth IRA for 30 years making an 8% return you would end up with $12,075.19. That is 10x what it is today!
- 529 College fund – A great way to designate the portion of money earned due to having kids is to put it in their college fund. Specifically, by putting it in a 529 plan. Earnings used for college will not be taxed so once again, all of this is tax free money.
For both account types, I recommend using Vanguard to set up these accounts if you don’t already have them. They generally have the lowest fees in the industry, and it is what we use.
5. Give It Away
This is a bit of a wild card and a very personal decision. If you feel as though you truly do not need the money or have other convictions for what to do with the money, then give it away.
It doesn’t have to be all of it, but even a portion of this could drastically impact someone else’s life.
Personally, we are tithing 10% of the check we are receiving. We do that with all income and would never tell anyone otherwise about giving or tithing. It is totally justifiable to tithe on this check just like you would with any income.
Each of these ideas allow you to get the most of this stimulus check regardless of where you are at. Keeping the lights on and food on the table is the most important but establishing a path for how you handle your money is critical towards financial success.
This is the foundation for how you should approach handling all your money, and this stimulus check is no different.
I can’t reiterate enough how important these emergency funds are and in a time like this I don’t think it can be too big. I would suggest though having a plan for that extra money you are putting aside. That does not include your $1,000 or 3-6 month emergency fund. When ready, either paying off debt or investing it later will have a massive impact on your money.
Even if you can’t pay off debt or invest this stimulus money, I hope it makes it easier for you to do so in the future once you have the basics covered.
So, how do you plan to spend your stimulus money?