4 smart ways to use a stimulus check to set yourself up to build wealth
- Congress and the White House have passed the third portion of a stimulus bill meant to offset economic effects of the coronavirus.
- One part of the bill includes sending $1,200 checks to Americans making less than $75,000 per year.
- While some people will need this money to make ends meet after jobless claims reached a two-year high in mid-March, it can also create an opportunity to get ahead on emergency fund savings, student loan repayment, or even bulk up investments for the future.
- SmartAsset's free tool can find a financial planner to help you take control of your money »
A deal has been made in the $2 trillion stimulus package to fight the financial hardships brought on by the coronavirus. Among other provisions, the stimulus package includes a big benefit for Americans who make less than $75,000 per year: a $1,200 check, according to The Washington Post.
The bill will still need approval from the House of Representatives and a signature from the president before becoming law. If it does, it would pay one-time direct payments of $1,200 to individual taxpayers who made less than $75,000 in their 2018 tax return. Payments would be reduced for people with incomes between $75,000 and $99,000, and joint filers who earned $198,000 or more. Parents would also receive $500 per child.
Some Americans will need these checks to cover housing expenses and bills, given the number of layoffs happening across the US. For others, this money can be used as an extra boost to help meet savings goals, pay down student loan balances, and get ahead financially. If you'd expect a check and don't need the cash for immediate bills, here are a few smart ways to use any extra money to better your finances.
1. Bolster or replenish your emergency fund
There's never a better time to have an emergency fund than now - downturns and unexpected events like these are what these funds are built for.
Typically, an emergency fund consists of three to six months worth of expenses. Sometimes, it can cover an entire year. Now might be a good time to add extra money to your emergency fund, or replace any money you've had to use.
Having those savings can add a level of comfort in turbulent times, and will also be a useful asset if you find yourself with a medical crisis or job loss. With no telling just how far economic impacts of the coronavirus could go, putting some of this check into an emergency fund could be helpful - especially if it can grow with interest in a high-yield savings account.
2. Invest it, and then be patient
If you're able to put the money away for a while without worrying about it, putting your money into the stock market could be a smart move to help it grow. It can be hard to see a down market as an opportunity, but when you put money into the market when it's low, you're able to buy more shares.
Lauren Anastasio, a financial planner at SoFi, previously told Business Insider's Tanza Loudenback that investing during a down market is like shopping during a sale. "When the markets go down, whether there's a day where markets are down or we're going through some type of bigger market downturn, that really just means everything is on sale," she said.
This is especially true for young investors, who have many years to let investments bounce back. If you know you won't need the money quickly, putting some of it into the stock market to grow for many years is still a smart move.
3. Pay off some extra student loan debt while interest is suspended
If you have student loans, you've probably heard that interest on federal loans has been temporarily suspended and borrowers can suspend their payments as well (note that the suspension does not apply to loans held by private borrowers). If you continue making payments, every dollar you put towards your student loans while interest is suspended goes directly towards paying off the principal on the loan - and that's an opportunity to get ahead on your loans and reduce future interest payments.
According to the Department of Education, federal student loans taken out between June 30, 2015 and June 30, 2019 have interest rates between 3.76% and 5.05%, depending on the year. While interest payments are suspended, you have the opportunity to chip away at the premium. Lowering your principal balance could mean smaller interest payments once interest rates back in place.
4. Invest in your own financial well-being with a financial planner
If you've been considering a financial planner but have been afraid of the costs, this extra cash could create the perfect opportunity to make an appointment.
There are plenty of financial planners who offer their services virtually. Additionally, financial planners can have many different specialties, so find one who is knowledgeable about your needs. There are planners who specialize in different situations, from planning for different generations, to planning for families and retirees.
If bettering your financial situation is on your mind, spending your stimulus check on a few financial planning sessions could be smart.
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