Don't let your stimulus check go to waste.
Since mid-March, the IRS has delivered 127 million stimulus payments as part of President Biden's efforts to restore the economy and assist families struggling during the COVID-19 pandemic.
This is the third stimulus payment, valued at $1,400 per eligible American. It's the largest direct payment to-date, and is likely to be the last. If you have received it already or are in line to get it, it's helpful to have a plan for what to do when the money hits your bank account.
Here are four options.
1. Bulk up your emergency fund
A generous emergency fund is particularly important during these uncertain times. Ideally, you should have enough money in a high-yield savings account to cover several months -- experts generally recommend three to six -- of living expenses. Because of the continuing uncertainty related to COVID-19 variants and the possibility of future lockdowns, going for six months is smart.
You may not be able to build up a large fund all at once, but depositing your stimulus check in an emergency fund can get you closer. It also gives you more peace of mind and protection from unexpected expenses in the meantime, since there are many emergencies $1,400 can cover.
2. Pay down debt
If you have high-interest debt, paying it down with your stimulus check could be helpful.
Applying your payment to credit card balances, payday loans, or medical debt could get you closer to being debt-free. You can also save on interest over time by reducing your principal balance with a large extra payment.
If you already have an emergency fund and you don't have a lot of high-interest debt, investing the money could be your best option.
Though investment is not risk-free, it allows you to put the stimulus payment to work so that it hopefully grows over time. If you invest your $1,400 stimulus check and earn an 8% average annual rate of return over 10 years, that one-time government payment turns into more than $3,000.
Investing probably isn't a good idea if you will need the money within the next three to five years. Shorter investment timelines increase your risk of loss, because you don't have time to wait out market downturns. You also shouldn't invest if you don't have an emergency fund -- you don't want to have to pull money out of the market (or end up in debt) in an emergency. And you don't want to invest if you have a lot of high-interest debt, because you could earn a better return by repaying what you owe.
But if you're in pretty good financial shape and you want to put your stimulus check to work for you, investment can be a smart choice.
4. Support a charity or local business
If you received a stimulus check but weren't financially affected by the pandemic, consider contributing to others who were hit harder. Donate to a charity, or use the cash at local businesses.
Ultimately, the best approach to spending (or saving) your stimulus money depends on your situation. We probably won't get another payment, so use it to make a positive difference in your own financial life or in the lives of other community members.
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