What to Do with Your Government Stimulus Check
- Author: Jeffrey Simmons
- Posted: 2024-07-26
For many Americans who are struggling due to the economic effects of COVID-19, some help may be on the way in the form of direct payments from the federal government. As the legislation is currently proposed, those who earn under a certain threshold will receive direct payments from the federal government. If you have lost your job or your income is dramatically impacted by the crisis, you will obviously need to use this money to pay your monthly living expenses. However, if you still have a job and earn the same, you can use this money from Washington to help your financial situation. Here are some things that you can do with your stimulus check assuming that the legislation passes Congress and is signed into law by the President.
Pad Your Emergency Fund
While your job may be safe for now, there are no guarantees in the future if economic conditions continue to deteriorate. It never hurts to have emergency savings at a time like this in case the economic contagion begins to affect you.
Although it may be tempting to spend your extra money, and the government may want you to add it to the economy, that is actually the worst thing that you can do with this money given what may await many people economically. There is nothing wrong with putting it away, at least until economic times have improved and you have weathered the storm. Being safe and cautious in times like this is what helps you survive while others may be forced to file for bankruptcy. Stocking up your emergency fund is the epitome of sensible when there may be millions of layoffs in the future.
Pay Off Your Debt
While many people think that paying off debt is just giving up this extra payment, reducing your monthly payments actually increases the amount of money in your pocket both now and in the future. By taking a chunk out of the principal that you owe, you can cut down what you have to pay, spending less money on interest any month. Then you can take that extra money and use it to further pay down debt. Sometimes, all it takes is one unexpected windfall to start pulling away the first string of paying off your debt. In other words, if all goes well, paying off your debt can gather momentum like a snowball rolling downhill. If you do not need this money to fund your living expenses, it is best to use it to get ahead. Paying off debt is perhaps the foremost thing that you can do in order to make your life easier from month to month.
Donate to Charity
Ordinarily, this would not be the first thing on the list when there is an economic pinch. However, everyone else is feeling the pain right now and you may be in a better position than them and want to help.
Beyond altruistic reasons, there are practical reasons why you may want to donate some of the money from the government to charity. Tucked away in the Senate version of the economic stimulus package is a tax credit of up to $300 for charitable donations. This is allowed even if you take the standard deduction on your tax return. In other words, the government is basically paying you to donate the government's money to charity. This means that you can help someone else with the money that you just received and it will not even cost you anything.
Invest in Your IRA
Remember that you are receiving this check for a reason. It is because the economy is in shambles. This means that stocks are on sale right now. While we cannot predict the short term moves of the stock market, we are pretty comfortable saying that the long term trend is always to the upside. Accordingly, this would be a great time to add a little extra to your retirement account when you can pick up a solid mutual fund or stable stock at a discount. This way, you can grow the money that the government is giving to you.
Of course, if you are married with a family, you may end up with several thousand dollars and can choose a combination of the above steps. The one rule with this money is not to waste it on something that will not help you in the long run.
