Don't Waste Your Second Stimulus Check. Do These 3 Things Instead
Still sitting on your stimulus money? Here's how to put it to good use.
At this point, many people have received a $600 stimulus payment, whether via direct deposit, check, or debit card, thanks to the relief bill that was signed into law in late December.
Getting a $600 windfall isn't something that happens every day. You may be tempted to blow that money on something fun to help get through the pandemic, like a new gaming system or even a series of takeout meals. That line of thinking is understandable -- we're all struggling in different ways and are tired of being bored at home. But before you blow your stimulus cash on things that may deliver near-term gratification, think about the ways it could improve your total financial picture.
Anand Talwar, a deposits and consumer strategy executive for Ally Bank, shared his advice on how to spend a stimulus check. Here are a few ways you can put that money to good use.
1. Pad your emergency savings
We should all have money in savings for a rainy day. If you're lacking in that regard, definitely consider sticking your stimulus cash into the bank.
"Planning for the unexpected should include a cash reserve that covers three to six months of life's essentials," explains Talwar. Of course, whether you opt to err on the lower end of that range versus the higher end will depend on your circumstances. If you live alone and can easily cut back on expenses if need be, you may be fine socking away three months of bills. But if you have a family and own a home, six months of expenses may be a more appropriate savings target. Either way, your stimulus can help you get closer to your ultimate savings goal.
2. Tackle costly debt
"The decision to spend or save your stimulus check hinges on a four-letter word: debt," insists Talwar. "If your only debt consists of a low interest rate mortgage loan, put that check towards emergency savings."
However, it's a different story if you're paying a lot of interest on your debt. "If you have high-interest debt, adjust your savings goal to one to two months of expenses while you pay down that debt," he advises.
Of course, credit card debt is a common type of high-interest debt. It can be more than just costly -- it could also damage your credit score, making it harder to borrow if you need to. Therefore, it pays to apply your stimulus cash to your debt, especially if you're good on near-term savings.
Maybe you're set with emergency savings and you don't have any unhealthy debt to your name. Do you get the green light to spend your stimulus cash on fun stuff? Not exactly. It's still a better bet to take that money and put it to work.
"Investments are another option," Talwar explains. "While the market does ebb and flow, a lot of people are finding this low-rate environment is a good time to invest some extra savings and diversify their holdings." If you're new to investing, you can start by opening a brokerage account and putting some money into index funds, which require a lot less research than vetting individual stocks.
Make the most of that stimulus
President Biden is currently pushing for a third stimulus payment of $1,400. But there's no guarantee it will actually happen as there's concern over sending out such a large sum. At the very least, some lawmakers are pushing for any follow-up aid to be more targeted so it reaches only those who are in truly dire financial straits.
The takeaway? Your recent $600 stimulus may be the last payment of that nature you get for a while, so don't blow it. Instead, assess your finances and aim to use it wisely -- whatever that means for your personal situation.
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