The 3 Smartest Ways to Use Your Stimulus Money

More stimulus checks were sent out in early June: 2.3 million of them, some of which were “plus-up” payments to people who were due more money once their tax returns were processed. In July, Child Tax Credit payments for people with children are scheduled to begin and will continue monthly. Plus, there’s talk of a fourth stimulus check in Congress, though that’s still an iffy proposition.

We’re still feeling some of the fallout from the pandemic, and the stimulus checks have had an impact, both on our pocketbook and our stress levels: Between December and late April, rates of food insufficiency fell by 40%, financial instability was down by 45%, and depression and anxiety dipped by 20%.

How have people used their stimulus checks so far — and more importantly, how should you use yours? Here are some things you should consider.

So far…

It turns out, the three different stimulus checks have been used slightly differently.

  • Nearly three-quarters (74%) of the money dispersed during the first round, or CARES Act, was spent, while 14% of it was saved and 11% of it used mostly to pay off debt.
  • During the second round, more than half of recipients (51%) used most of their money to pay off debt, while 26% saved most of it, and 22% spent most of it.
  • That ratio held up pretty well for the third disbursement: 49% used it mostly to pay down debt, 32% mostly saved it, and 19% mostly spent it.

Check recipients were also grouped into three income categories: under $75,000, $75,000 to $150,000 a year, and $150,000 or more a year. For all three disbursements, those with higher incomes were more likely to save their money than those who made less.

Moving forward…

Of course, none of this means that’s how you should use your money if you happen to fall into a particular group. Your situation is unique to you, and your financial needs should help dictate what you do with the money. Here are three of the smartest ways to spend your stimulus money.

  • Pay Off Debt

A stimulus check is a lot like an IRS refund: It’s a one-time windfall that you can’t count on to come around again, regardless of what chatter you might hear in Congress.

That’s probably why so many people used it for the one-time purpose of paying down debt in the second and third go-rounds. It’s not a bad idea. If you’ve got your regular monthly expenses under control, but you have significant debt — especially debt with high interest rates — you can save a good deal of money by paying off a big chunk of it.

It’s possible that more people spent the first stimulus check because they needed it to cover immediate expenses like food and utilities. Then, as their financial situation improved (either because of the first check, because they got more income, or both), they were free to use more of the second and third checks to pay down debt.

  • Rebuild Your Credit

Did you take a big hit financially during the pandemic? Maybe your credit suffered; if so, it would be wise to pay any overdue or delinquent bills and clear your books of any problems that could affect your credit history. Then, check your credit report to find out where to go from here.

If your credit score has suffered, you can take steps to rebuild it by setting aside some money to open a secured credit card account. These types of credit cards require a deposit, making it easier for people with low or no credit to qualify. Otherwise, you use it like a regular credit card and make minimum (or larger) payments every month.

That will get your credit score headed in the right direction in case you want to apply for a mortgage, car loan, or personal loan down the road.

If, on the other hand, you have good credit and you’re able to handle all your bills without stimulus money, think about investing it or putting it away for retirement or some other future goal: a vacation, your kids’ education, etc. Or maybe invest it in your business or education to acquire more skills and increase your marketability.

  • Be Prepared

The pandemic blindsided most of us, but it also reminded us of how important it is to be prepared. Of course, we can’t be ready for everything, but we can do our best to head off the crises we can foresee.

Do an inventory of your health, car, and home insurance coverage and see whether it’s adequate for your situation. Consider risk factors, deductibles, what you can afford to pay monthly, and what costs you could absorb if the worst occurred.

Think about problems that could occur at home if your house were damaged by a severe storm, for example, or if your plumbing sprang a leak or your air conditioner stopped working in the middle of summer. Savings for emergencies such as these, and the kind of maintenance that can prevent some of them, is always a good idea.

Along those same lines, take care of vehicle maintenance you have been putting off. Changing your oil, replacing your tires, and getting new brake pads regularly will help your vehicle last longer and help you avoid more costly problems, saving you a lot of money in the long run. It’s also a good idea to invest in an emergency repair kit for your car, truck, SUV, or RV. Include things like a jack and tire iron, road flares, flashlight, jumper cables, a tire gauge, and any items you might need to deal with cold weather, like a foldable shovel, ice scraper, and extra antifreeze.

In the end, the smartest way to use your stimulus money depends a lot on your personal situation. So take stock of where you stand, see where it would be best put to use, and go from there.

Jessica Larson, SolopreneurJournal.com

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