While many Americans will likely spend their 2021 stimulus check on necessities like food and rent, there are other options for the fortunate few who were able to keep their jobs through the height of the COVID-19 Pandemic.
Using your stimulus check to invest in yourself and build up your savings accounts, pay down credit card debt, and purchase stocks is the best way to put your stimulus check to work. We have rounded up the top smart ways to spend your 2021 stimulus! Read on for more.
Pay Off Credit Card Debt
Paying off credit card debt can free up your spending money in the future by preventing you from accruing massive amounts of interest. Most credit cards have an interest rate of around 15 percent, so it is very easy to inadvertently build up a lot of debt.
If you decide to use credit cards as a part of your finances, you should limit your spending as much as possible. In general, you should try to use about 10 percent of your available credit line and make monthly payments to avoid generating too much interest.
Using your stimulus to pay off credit card debt can help you overcome large amounts of debt that you may have accumulated during the coronavirus pandemic. By paying off your debt, you can increase your credit score and save money by avoiding hefty interest payments.
Build a Savings Account
Investing a portion of your stimulus money in a savings account can help you become financially responsible. Savings accounts should be separate from emergency funds, and you should generally avoid making any withdrawals.
Any amount of money that you invest in a savings account will grow with compound interest. Begin your savings account early to maximize your growth from compound interest.
Create an Emergency Fund
In addition to a long-term savings account, you can put some of your stimulus toward creating an emergency fund. Emergency funds are vital for increasing your financial security and can help you prepare for any expected crises that would otherwise be a drain on your savings accounts.
As a general rule, you should try to have an emergency fund that can cover around six months’ worth of your expenses, but any amount is a good starting point. After you begin an emergency fund with your stimulus money, you can continue to make monthly contributions whenever you have some money to spare. No contribution is too small!
Begin Investing in a 529 College Savings Plan
A 529 college savings plan is the best way to prepare for your child’s education. The plan grows tax-free and generally has a low initial investment amount—even a small portion of your stimulus money can help you begin to save for your child’s future. Additionally, you do not have to pay tax on withdrawals from a 529 plan as long as the money is going toward college expenses.
Beginning a 529 plan early is important to maximize the potential growth of the account. Money in a 529 college savings account can grow exponentially over time to cover the expenses of higher education. The earlier you open a 529 account, the longer the money has time to grow and the more time you will have to invest.
Make Careful Investments
If you want your stimulus money to help you make even more money, you could carefully invest in the stock market. The stock market could grow your wealth exponentially. While the money you receive from your stimulus may not constitute a particularly large initial investment, any amount can help you begin to develop a strong stock portfolio.
The easiest way to begin investing in the stock market is to take advantage of online tools and phone apps that can handle your investments for you. Many investment apps cater to small-time investors who are just beginning to learn about the stock market.
To get the most out of your investments, you should try to make regular contributions to your stock portfolio. Recurring investments can greatly increase your potential earnings and help you create a diversified portfolio. If your investments grow beyond your comfort level, you can enlist the help of a financial adviser to help you make smart investment choices.
Donate to Charities
If you can afford to donate your stimulus check, you can help ease the suffering of Americans who are still recovering from the fallout of the coronavirus pandemic. With millions of people unemployed as a result of the pandemic, food banks and non-profit organizations are having a tough time keeping up with increased demand for their services.
Any contribution you can make to a charity will help them meet the needs of those recovering from the pandemic.
Work Toward Your Goals
Another way to spend the money you receive from your stimulus check is to work toward your short-term and long-term goals. Whether you want to buy a car, own a house, or even get a new laptop, any amount you can contribute from your stimulus money can help you reach your goals.
If you want to use your stimulus money to fund your long-term goals, you should start by putting the money into a savings account so that it can grow safely. Once you’re ready to make a big purchase or realize a long-term goal, the money you already set aside will be able to help you cover the expense.
Prepare for Retirement
For many Americans who are struggling to recover from the coronavirus pandemic, retirement is likely the last thing on their minds. If you can afford it, investing stimulus money into a retirement account will help you feel financially prepared for the future.
Roth IRAs are an alternative to traditional retirement accounts that allow you to make tax-free withdrawals during your retirement after paying tax on all investments. These are a good option if you expect that you will have higher taxes to pay during your retirement than you pay currently.
For more ideas on how to wisely spend your stimulus, check out our other blog posts that teach you the best ways to invest in your financial future!