In response to COVID-19, the federal government passed a $2.2 trillion stimulus bill with the goal of aiding Americans and providing relief in a time of great financial hardship. This bill — also known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) — was signed in late March and has supplemented millions of eligible citizens that have been hit hard by the coronavirus with one-time checks.
Using 2018 and 2019 tax return information, the IRS has given eligible individuals $1,200, married couples $2,400, and an additional $500 per child. More than 23.1 million Americans have filed for unemployment since the middle of March 2020, so this stimulus check has provided much support to those who are struggling to stay afloat. If you have not yet received your payment, see if you qualify for the stimulus check.
Managing your finances and maximizing the funds of your stimulus check are key during these unpredictable times. Read more to learn 10 ways to use your stimulus check wisely.
1. Create a Budget
Once you receive your stimulus check, reevaluate your budget. Since we are facing uncertain times and the future is unclear, creating a new budget for yourself will give you the flexibility to stretch your stimulus check for a longer period of time. Having a budget is the best way to take control of where you’re spending your money and ensure you’re making the most of what you have. For example, a budget may make it clear where you need to trim additional expenses, such as unnecessary services or subscriptions.
2. Address Essential Needs
Taking care of your basic needs is an important thing to keep in mind when thinking of how to use your stimulus check. Put this money towards essentials such as food, rent, and other bills. Be sure to find out if you are eligible for financial relief — many lenders, such as financial institutions, auto services, and utility companies, are offering some allowances during this difficult time.
3. Add to an Emergency Fund
You never know what may happen in the future. Consider putting your stimulus check towards an emergency fund if you can afford to do so. Having a financial backup fund provides peace of mind and can be used on a rainy day. Usually, these funds should hold enough money to cover expenses for three to six months, but something is always better than nothing.
Using your stimulus check this way can offer a great kick start to this type of account. Another plus is that you can earn interest over time on your emergency fund if you put it in a high yield savings account.
4. Pay Down Debt
If you have the means to, use your stimulus check to pay down high-interest debt. For example, this type of debt includes any high-interest loan or credit card debt. As of February 2020, the average annual percentage rate for a credit card stood at 15.09 percent, according to the Federal Reserve, which is a good reason to focus on tackling this debt first.
Come up with a repayment strategy and contact your credit card lender to discuss other payment options or schedules if necessary.
5. Help Your Local Community
During this time, many local businesses are struggling to make ends meet as they have been forced to shut down or minimize hours due to the pandemic. You can use your stimulus check to give these businesses or their employees some much-needed financial help since many people are now out of a job.
Ways to do this include purchasing a gift card from your favorite places such as restaurants or other small shops to use once restrictions are lifted. Food delivery is another option — consider leaving the delivery worker or employee a big tip. Many GoFundMe’s have also been created that you can contribute to.
6. Pay Your Taxes
Due to COVID-19, the deadline for filing taxes has been postponed to July 15, 2020. If you still haven’t filed or paid your income taxes, you can use the stimulus check to help out with your outstanding tax payments.
Paying your taxes on time is important even if you can’t pay the full amount that’s due. A good rule to follow is that if you must pay late, then the sooner your taxes are paid, the less is owed in interest and penalties. There are a few payment options, such as Electronic Funds Withdrawal (the quickest and easiest way), same-day wire, check or money order, or even cash.
7. Open a High-Yield Savings Account
If your bills and essential needs have been met, you may want to increase your savings, and put your stimulus check into a high-yield savings account. High-yield savings accounts are comparable to traditional savings accounts, with one difference: they offer a much higher annual percentage yield.
While we’re currently in a low-interest environment, these high-yield accounts typically pay up to 25 times the national average of a traditional savings account and are low in risk.
8. Contribute to a 529 or College Savings Account
Use the stimulus check money to open or contribute more to a long-term investment account for your kids, like a 529 plan. This type of account allows you to withdraw growth on your investment tax-free. Depending on your state, there may also be additional tax benefits.
With the money you have saved in this account you can use it, tax-free, to pay for qualified expenses such as books, supplies, and tuition. The stimulus check package also provides $500 per child so if you do not need that money, you could think about investing the money into a 529 account and help save for their future.
9. Invest in Yourself
With all of the newfound time on your hands, investing in yourself and continuing your education is another great option for how you can use your stimulus check. Set yourself up for success and think about the areas you are interested in or ways you want to improve your skills.
You can put this money and time towards learning a new skill, such as one that is necessary for your career or even a language you’ve been curious about learning. If you’re still in college, consider putting this money towards your tuition for next semester or use it to pay down your student loans.
10. Donate to Those in Need
If you find yourself not needing the extra cash from the stimulus check, you could make charitable donations to those in need or to a cause you believe in, or to friends and family who need extra help.
Many relief platforms are fighting for the cause, such as charities, food banks, nonprofits, and hospitals. These include trusted sources such as the World Health Organization and the American Red Cross. Check with your local and state governments for more opportunities to help those in need.
There are many possible ways you can use your stimulus check, as the choice ultimately depends on your personal preference and financial situation. However, following smart financial decisions such as budgeting, taking care of personal needs, and paying down debt should be priorities to make the most of your stimulus check. Following these 10 tips can help you get on the right track and allow you to figure out how to use your stimulus check wisely.