Don’t blow the windfall – three great options for your stimulus cash

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Since the start of the pandemic in 2020, the United States has sent three rounds of economic impact payments to eligible recipients through May 2021. If you’re one of the millions of beneficiaries from $271 billion in the first round, $135 billion in the second round, and $242 billion in the third round of stimulus payments, how have you used this bonus cash?

When considering your options for how to spend this money, weigh your options carefully. How much of it do you need to spend on necessities? Does paying down debt make sense? Should you add more to your emergency savings? Would buying investments benefit you more than other options?

Everyone has different circumstances impacting their lives. Employment status adjustments, unexpected medical expenses, critical vehicle repairs, and other immediate needs may gobble up some or all of the government windfall. But for that portion of the economic payment that doesn’t need to be used for immediate needs, restraint against spending it all on desires could be a good strategy to weather future storms.

Option 1 – Pay down debt

If you have high credit card debt, consider using a portion of the stimulus money to pay down debt. Paying down or eliminating high interest debt can free up monthly income, saving you from over committing to payment obligations.

High interest debt can stretch a person’s income so tightly that any minor financial problem requiring an infusion of cash to repair it can overwhelm a sparse bank account. The more of your monthly income you keep, the faster you can build your savings and invest in assets that can upgrade your lifestyle and income over time.

Option 2 – Build your savings

Without an emergency savings account, managing emergencies can be difficult, especially when high interest credit card debt replaces that dry bank account. Contributing some of the stimulus payment to an emergency fund not only gives you access to capital when you need it, it also offers peace of mind in knowing it’ll take more than a missed paycheck to sink your financial ship.

“But savings accounts don’t pay interest these days. Why should I let banks use my money for free?”

Savings accounts may not pay much in interest now, but they are a valuable holding ground for access to cash you need fast. Investments that earn higher rewards are great for long-term growth, but it takes time to sell investments and gain access to that cash. A savings account gives you access to money now, not a week or a month from now. Speedy access to cash can mean everything if the fan belt in your car blows apart on the way to work.

At a minimum, consider building your savings account equal to three to six months’ worth of your expenses. With a few months’ worth of savings in your corner, you’ll be able to handle financial emergencies that inevitably come up in life, whether it’s an unexpected shift in employment circumstances, a cracked tooth, a new set of tires for your vehicle, or a replacement water heater that just exploded all over your floor.

Option 3 – Invest for your future

After you build a savings account worth at least three months of your expenses, consider investing excess cash. Starting an investment account and growing it over time can eventually replace your income, giving you the option to choose the lifestyle you want, wherever and whenever you want it. A good place to start your investment journey is an online investment platform.

Many investment platforms require low to no fees for investing in certain types of investments, and adding money to the account is easy with automatic deposits. Choosing the right investments depends on you, but diversity is usually a good choice for a good risk/reward benefit. Sticking all of your investment dollars into Grow Your Money Tree to the Moon Corporation stock might not feel so great if the roots of that tree get eaten alive by mischievous creepy crawlies.

After adding stimulus cash to an investment, consider contributing to it with regular, small payments over time keep it growing faster.

The bottom line

As more people become vaccinated, pent-up demand for goods and services will continue to soar. Don’t let the feeling of spending euphoria override your goals when it comes to managing your money! Keep a cool head and consider the best use of your money, even in the face of something that doesn’t make you super excited in the here and now.  

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