Here are 5 horrible ways to spend your stimulus check.
Here’s what you need to know.
The $1.9 trillion stimulus package — the 2021 U.S. bailout — includes $1,400 incentive checks for individuals, $2,800 for married or joint applicants and $1,400 for eligible dependents. That means a family of four can earn up to a $5,600 incentive check. Before you spend your third stimulus check, however, make sure you avoid the 5 worst ways to spend your stimulus payment:
1. Not paying your essential bills
This sounds incredibly simple, but it really is the number one priority. The stimulus check is intended to help people who are struggling financially after the Covid-19 pandemic. From unemployment to housing and food insecurity, stimulus measures are designed to build a financial bridge, especially for vulnerable Americans. That’s why it’s essential to spend your stimulus check on essential bills like housing, food, and utilities first. Make sure your financial house is in order.
2. Not paying off debts
If you can meet your essential monthly expenses, your next financial step should be paying off debt. Think of student loans, a mortgage, personal loans and credit card debt. There are several ways to pay off debt, including refinancing, or just a lump sum payment with some or all of your stimulus check. If you want to make a lump sum payment, please inform your lender, credit card issuer or student loan administrator (preferably in writing) that you are making a one-time payment, and it should count as an additional payment to be credited now (and should not be applied on the following month’s payment). This way you can save money on interest. Apply your stimulus check to your highest interest debt first (to save the most money), or you can also start paying off your lowest dollar balance (to get a psychological win). You can also refinance student loans or your mortgage or get a personal loan and consolidate credit card debt.
For example, let’s assume you want to refinance student loans and use this student loan refinancing calculator. Let’s also assume you have $80,000 in student loans with an average interest rate of 8% and a 10-year term. If you can refinance student loans at a 3% interest rate and a 10-year repayment term, you can reduce your monthly student loan payment by $198 and save a total of $23,776.
3. Don’t build an emergency fund
There are many financial lessons to be learned from the Covid-19 pandemic. One lesson is that change can happen quickly. From your job status to the health of your loved ones, your happiness can take the occasional speed bump. That is why it is essential to build an emergency fund. Most people have heard of an emergency fund and simply ignore the advice because they think they will never need it. Don’t be most people. Open a separate bank account and start depositing whatever portion of your stimulus check you can afford. Continue to top up your balance every month. Whether it’s $5 or $100 or any other number, the goal is to save at least 6 to 9 months (preferably a year) in costs in an emergency.
4. Invest your incentive check in the stock market
Don’t invest your stimulus check in the stock market. You might not like that advice, especially if you’ve invested before and your portfolio has skyrocketed in the past year. Unless you’re a seasoned investor, or you’ve already paid essential bills, paid off debt, and built an emergency fund, don’t risk your incentive payment. Why? If you need your stimulus check now or in the near future, there’s no guarantee you’ll make money in the stock market, despite the success stories you’ve read or how your investment portfolio has performed. If you simply have to invest your stimulus check in the stock market, keep in mind that you could lose some or all of your stimulus check.
5. Using your stimulus control on March Madness
If you are a college basketball fan, you know that this is now March Madness, the pinnacle of college basketball season. You may have a tournament group where you pick the winners and losers, and the eventual national champion. Here’s the thing: don’t bet your stimulus check on March Madness. Yes, you may have a knack for predicting the future, or you may be a consummate sports gambler. But March Madness has already had quite a stir this year, and if you think you can pick a winner, know that there are likely more setbacks to come. For example, Oral Roberts beat Ohio, Oregon beat Tennessee, Wisconsin beat North Carolina, and North Texas beat Purdue. If you picked all four of those perturbations, you might get a reprieve. Otherwise, you’ll need to pay your essential bills, pay off debts, and build an emergency fund first.