With the passage of the $1.9 trillion stimulus bill, the promise of a $1,400 stimulus check offers many Americans a welcome reprieve from months of financial stress.
“Overall, how people will most benefit from their stimulus money really depends on their unique circumstances," says Debbie Todd, a CPA, and CFEI for more than 20 years, CEO of iCompass Compliance Solutions LLC, and cofounder of Dollars and Good Sense Foundation. “It is truly individual—no one size fits all."
While making the most of your check will be a personal decision guided by multiple factors, here are eight smart options to consider.
1. Pay for basics
The most obvious thing to do is pay for basics like food, rent, and utilities, especially if you've fallen behind on your bills. As tempting as it is to treat yourself with this little windfall, it's better to think of the funds as practical support for your everyday life.
“Before you receive the stimulus money, take a gut check on your financial stability," says Megan Brinsfield, CPA, CFP, and director of Foolish Financial Planning for Motley Fool Wealth Management. “If you are struggling to pay bills, behind on rent, or racking up credit card debt, then funnel the extra cash towards those essentials."
2. Save for emergencies
If your bills are paid, but you don't have a solid emergency fund, sock at least some of the stimulus money away for a rainy day. Financial experts recommend maintaining an emergency fund that can cover three to six months of expenses.
Alarmingly few Americans keep that much on hand, but even saving enough to pay for a broken furnace or a surprise medical bill can make your family more secure and provide peace of mind.
3. Give yourself some joy
Using the money to pay for things that help us cope in this trying time, such as extra childcare help or takeout dinners, can help us “mentally persist," according to Brinsfield.
Splurging on extras like new clothes, tech gadgets, or cocktails at an outdoor bar can inject some pure joy into our daily lives—badly needed these days. But think hard about your entire financial situation before you spend on anything that's not strictly necessary.
“It's easy to reward yourself with something nice (after all, it's been a rough year, right?)," says Todd. “I encourage you to write down your current financial needs, your options, and then sleep on it for at least three nights."
4. Help others
Many people are hurting right now that it may feel urgent to help others if you're financially stable yourself. If so, consider donating all or part of your stimulus check to a food bank, food drive, or other effort or organization.
Keep in mind that it is particularly helpful for organizations to receive unrestricted gifts they can put toward general operating expenses. Before donating, use GuideStar to check whether the organization you've chosen is credible.
5. Pay down debt
Another option, if you're not hurting for cash, is to pay down some debt. But proceed carefully when typing up your money in this way.
“I am an avid proponent of paying down debt, but again, only if you have enough food, rent, and gas money," says Todd. “Don't end up homeless or hungry."
Brinsfield advises keeping liquidity instead of paying down debt right now, especially if you have an interest rate below 5%. The last thing you want is to end up needing a cash advance to keep a roof over your head — a particularly pricey proposition.
6. Start a business
They say you have to spend money to make money, and that's certainly the case when it comes to starting a business of your own. The extra funds in your stimulus check can be exactly what you need to get the business you've been dreaming of off the ground.
“After interviewing 140-plus business owners on our podcast, the Shrimp Tank in Boca Raton, which is run in collaboration with the Florida Atlantic University Adams Center for Entrepreneurship, we have noticed that the brightest and best entrepreneurs typically find a niche and pour money into it," says Jason R. Hill, president of Client Focused Advisors. “We have seen many businesses start with under $2,000 and turn it into million-dollar brands on the Inc. 5000 list in a matter of years."
One word of caution is to watch your budget as you create your start-up plans. You can do a lot with $1,400, but it won't go as far as you think. Grow your new venture slowly, adding costs as you bring in revenue.
7. Create an estate plan
Creating an estate plan is a great way to safeguard the financial security of your family should you become ill, incapacitated, or pass away. If you don't need your stimulus check to take care of essential expenses, putting that extra money toward an estate plan makes a lot of sense.
"The pandemic has surfaced many important financial topics that many of us have brushed aside — including estate planning," says Leslie H. Tayne, financial attorney and author of the book Life & Debt. "It's crucial to have a legal estate plan in place to ensure your assets are distributed per your direction, the way you intended, without leaving your family to fight or go to court."
Think before you spend
Whatever you choose to do with your check, thinking it through carefully before taking action will set you up to be satisfied with your decision.
“My advice now, as it is with my tax clients and our zany lifelong money wellness workshop students, is to pause, take a breath, and another one—then discover how to take small, healthy steps in your own financial wellness journey," says Todd. “Your heart, your peace of mind, and your quality of life will thank you."
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