What you should consider before spending all of your stimulus check
The middle of April 2020 is certainly... not how it normally is. April 15th usually marks the dreaded “Tax Day”, but this year we are replacing our fear of taxes with a fear of contracting COVID-19. Taxes are taking a backseat until July, and there are some other new and monetarily stimulating things going on, like surprise checks and paused student loan payments. If you woke up to an extra one or two thousand bucks in your account this week, you might be wondering “what should I do with this?” and “are there strings attached?”. Before you swipe your card on that brand new flat-screen TV, let's take a look at the fine print, and consider some good places to put that stimulus moolah.
Who gets a stimulus check?
First things first. Who qualifies for the stimulus check?
Your check will be based on your 2018 or 2019 AGI (Adjusted Gross Income). If you are single and your AGI was under $75,000 you can expect $1200 to show up in your bank account, or in the mailbox.
Couples who filed taxes as Married Filing Jointly (MFJ) and had an AGI of less than $150,000 can expect $2400.
Kids = $500 each.
If you were over that threshold? Your payment shrinks until single filers hit $99,000 (over that and you won’t get anything) and $198,000 for couples filing jointly.
Now, the rumors.
Do you have to pay your stimulus check back?
Many people have heard that whatever payment you got is going to come out of your taxes next year, which certainly makes getting a big check a lot less fun. But, the answer is NO, you do not have to pay your stimulus payment back come next filing season!
No. Strings. Attached.
If you want more information, like if you should be expecting a payment and when, see what the IRS has to say here.
So we don’t have to pay our stimulus money back, but what should we do with it? If you are currently unemployed but are not getting unemployment benefits yet, and have upcoming bills and expenses, obviously this money should be used for that. Keeping the lights on and food on the table is your #1 priority. But for those who are still getting a regular paycheck and have a healthy emergency fund, where should you put this extra money? I’m sure you have plenty of ideas, after all, “how to spend money” is a lot less googled than “how to save money”, but if you’re trying to better your financial situation, here are my recommendations.
1. Pay off some debt
Debt doesn’t feel good. If you have credit card balances or other debt that is weighing you down, you should put at least a portion of this money towards it! Making extra payments on your debt is the best way to make it go away faster. Yes, this is probably the least fun thing you could do with an extra thousand bucks, but the feeling of having $0 balances on all of your credit cards? That is fun.
2. Save or invest a little
Having some extra cash in your emergency fund at a time like this isn’t a bad idea. Consider putting some of the money from your stimulus check into your savings account (bonus points if it’s high-yield) and breathe a little easier next time an unfortunate event strikes.
If your savings account looks good, consider investing some of the money instead (pssst! You can still contribute for 2019 in your Traditional, Roth or SEP IRA, as this extension has also moved to July 15th with the tax deadline!). It is extremely difficult to time the market and impossible to predict it, but dollar-cost averaging with your investments over a long period of time is one of the best ways to get to retirement.
Not sure how to get started with investing? Read this.
3. Spend a little
Well, it is a stimulus check after all. Once you have taken care of your current and future self, go ahead and stimulate the economy! If you’ve been conscious about where this extra money has been going so far, consider spending in areas that can benefit your area directly. Are there small businesses you could be supporting during this crazy time? Consider spending some of your stimulus check there, and help support the healthy flow of our economy.
Allocating your money wisely, every time it comes to you, is one way to build healthy financial habits. I hope these simple recommendations have spurred some thought of where your stimulus check should be used!
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Hi, I'm Alicia, welcome to Friend of Finance! This site is a way for me to share helpful things I've learned from working in the financial industry, important money things that I probably wouldn't have learned otherwise, and things everyone should know about.