With the $1.9 trillion coronavirus relief package now signed into law, most American households are again poised to receive stimulus checks from the US government. This means, among many other elements, $1,400 checks for each household member!
But what’s the best way for you to use those funds? Before running off to spend the money, consider how these funds could help “stimulate” your own financial picture by helping you stay or get back on track toward your financial goals.
What’s in the most recent stimulus package?
Most Americans stand to receive checks of $1,400. That’s $1,400 for every adult, child, and adult dependent (such as college students). So a married couple with three children will receive $7,000. These checks will only go to households earning less than $75,000 (single filers) or $150,000 (married filers), based on your most recent tax filing. The check amounts gradually phase out above these amounts.
The package also includes a child tax credit increase from $2,000 to $3,000 for 2021, as well as a bonus of $600 for children under age 6. The package also includes weekly unemployment benefits of $300 for those eligible.
5 Ways to “Invest” your next stimulus check
The government, of course, reasonably expects these funds to be spent on all sorts of products and services we buy every day. For many of us that will be necessary as we emerge from the economic toll taken by the pandemic.
But the pandemic’s effects have been mixed, and many Americans will likely find themselves with $1,400 “stimmy” checks but comfortable financially.
If this applies to you, identify some better uses for your stimulus funds. By this I mean consider your own unique goals and priorities. Are there any top-of-mind goals that are off-track following the turbulence of 2020? Consider these five common areas:
1. Create or Increase Your Emergency Fund
Did you need to tap into your emergency funds last year? Your fund should be your first safety net when hard times come (not credit cards!), and your first priority to replenish when good times return. If you have yet to start an emergency fund, consider setting aside some or all of your stimulus check to build that essential cushion.
2. Payoff High-Cost Debt
If you ran into some hard times in 2020 and didn’t have an emergency fund, then you may have turned to credit cards. We all know what a wreck credit cards can make of our finances. If you’re carrying a balance month after month at a high interest rate, you’re shooting yourself in the foot financially. Commit to paying off credit cards and other high cost debts, like student loans.
3. Boost Your Retirement Savings
If your emergency fund has at least three months of expenses and your high-cost debts are paid off, you may want to contribute to your retirement savings. If you have a 401k plan through work, you could temporarily increase your payroll deductions, or, as long as you have sufficient earned income, you could use your stimulus money to fund a Traditional IRA or Roth IRA.
4. Fund your HSA
All of us will have health care expenses eventually, so those eligible to make an HSA contribution should consider it. HSAs are an excellent savings tool that provide a tax deduction for your contributions, and funds are tax free upon withdrawal as long as they’re used for eligible health-related expenses. In addition, HSA funds can be invested, with the investments growing tax free as well!
5. Go on vacation!
Let’s be honest. After a year like 2020, many of us need a mental and social reset. On top of that, many vacations were skipped last year due to the pandemic. Assuming you don’t have any looming financial problems on the brink, you may want to use your stimulus check to fund a nice vacation. Already took one or don’t know where to go? Set the money aside for later in a savings account for later use. Given last year’s chaos, we’ve all earned it.
Do you want to work with someone who specializes in helping families reduce their income taxes, optimize their retirement income, and invest smarter? Schedule a free consultation.
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