Stimulus checks are currently on their way to Americans' bank accounts, and millions of people are expected to receive one.
Roughly half of Americans say they plan to spend the money on bills and other essential expenses, according to a recent Gallup poll. For those who are experiencing significant financial hardship due to the coronavirus pandemic, an extra $1,200 can go a long way toward making ends meet.
As exciting as it is to get free money from the government, though, it's important to spend this cash wisely. And there are a few things you should avoid doing when you get your stimulus check.
1. Pay down low-interest long-term debt
Paying down debt when you have some extra cash is often a good idea, because the faster you can pay off debt, the more money you'll free up in your budget to put toward other expenses.
However, many creditors are being flexible and giving borrowers a break on their debt repayments right now. Several banks and mortgage lenders are offering payment assistance to those who are financially affected by COVID-19, sometimes reducing monthly payments or allowing people to defer payments without being charged late fees. Many of these institutions offer help on an individual basis, so don't be afraid to reach out to your creditors and see what kind of assistance is available.
You will need to go back to making payments eventually, but if you can catch a break on these bills right now, you may be better off putting your stimulus money toward groceries, an emergency fund, or other immediate needs instead of paying off debt.
2. Splurge on something you don't need
Self-isolation is tough, even if you're lucky enough to still have a job and don't need to worry about how you're going to pay the bills. It might be tempting, then, to splurge on something nice for yourself to make these difficult times a little easier.
That could potentially be dangerous, though, because nobody knows exactly what the future holds. Approximately 67 million employees are at a high risk of facing layoffs as a result of the coronavirus pandemic, according to research from the Federal Reserve Bank of St. Louis, which comes out to nearly half of all U.S. workers. So even if your job is safe right now, it's a good idea to prepare for the worst just in case and stash that stimulus money in an emergency fund.
3. Invest it if you have no savings
In some cases, investing right now may be a smart move. When the market is down, stock prices are at their lowest. That means by investing now, you have a prime opportunity to buy when the market is essentially on sale.
That said, you should only invest money that you're absolutely sure you won't need for the foreseeable future. The last thing you want to do is invest your cash and then have to withdraw it in a month if you run out of savings. So before you invest, make sure you have a healthy emergency fund that can hold you over for several months in case you lose your source of income.
The general rule of thumb is to save enough in an emergency fund to cover three-to-six months' worth of living expenses. But these are unprecedented times, and there's no telling just how long it will take before life goes back to normal. So you may want to stash a little extra in your emergency fund just in case you lose your job and are out of work for longer than you expect.
The coronavirus stimulus checks are intended to provide relief for those who are struggling financially, but it's important to ensure you're spending this money wisely. By putting this cash where it can do the most good, you'll be able to make the most of every dollar.