At the end of December, Congress passed and the President signed the COVID-19 Economic Relief Bill. This means, among many other things, that a second round of stimulus checks have already started to go out. If you’re expecting to receive this infusion of cash, how would you spend it?
According to a recent study, 36 percent of people put their first stimulus check toward savings, 35 percent used it to pay down debt, and 18 percent spent it on more immediate necessities. However, what you spend this next round of stimulus money on may look different this time around. Maybe you need to spend it on rent and food. Or maybe you should focus on building an emergency fund and paying off your credit cards.
Needless to say, these decisions will depend on the current state of your finances and the stability of your employment. Let’s take a look at a few key options and the factors you should consider when deciding how to spend that second stimulus check.
How much are you getting?
Of course, one of the first questions to answer is, “How much am I getting?” The amount that was approved is $600 per individual, despite efforts to raise that to $2,000. There are income limits, but for example, a couple making less than $150,000 with three children under 17 would receive $3,000 ($600 x 5). Mixed status families — where a U.S. citizen or green card holder filed a joint tax return with an undocumented spouse — are eligible to receive this aid as well as retroactive payment of the first stimulus check ($1,200 per household and $500 per dependent).
You can calculate your stimulus amount based on your income, tax filing status, and the number of dependents you claim. Additionally, although efforts to raise the stimulus amount failed, the new session of Congress that was sworn in on January 3rd could take up the issue again.
Stimulus spending projections
As far as this round goes, lawmakers hope this cash infusion will help people meet their needs as well as stimulate the economy. According to a recent survey, here’s how people plan to use their second stimulus check:
- 53% would use part of it to pay down bills
- 43% said it would go toward essentials
- 39% would put it toward savings
- 30% would use it to pay rent or a mortgage
- 22% planned to spend it on holiday gifts
It’s important to have a plan for your money, and what works for someone else may not fit your circumstances. So how should you spend your stimulus cash? Below are a few points to consider.
Cover the essentials
The first step to figuring out how to spend the second stimulus check is prioritizing your needs. You can’t start planning a mini vacation if you can’t cover your utilities bill. Similarly, you might be tempted to save the money during these uncertain times, but if you’re falling behind on credit card and car loan payments, those need your attention first.
So, your first focus should probably be meeting your basic needs. That is food, housing, utilities, and essential transportation. This is especially true if you’re unemployed or underemployed. Put together a detailed budget based on your current income and expenditures, and cut anything that is nonessential, like subscription services, unused gym memberships, and eating out. Once you’ve covered those immediate needs, you can look at other options for your stimulus money.
Keep up with your bills
If you’ve got the basics covered, the next thing to look at is your debt. Are you falling behind on credit card payments? Because of compounding interest, this can significantly increase your debt, not to mention damage your credit score. Many student loans are on hold until at least January 31, 2021, so those are less of an immediate concern at this point (but something to plan for).
And whether you’re dealing with credit card payments, student loans, or other types of debt, it’s always worth contacting your lender to see about a more manageable repayment plan, waiving late fees and interest, loan forbearance, and the like. After that, you can focus on making those minimum payments and protecting your credit.
Add to your savings
If you can cover the essentials and make the minimum payments on your bills, but your employment situation is precarious, consider saving as much money as you can. Again, take a hard look at your budget, slashing those nonessentials and saving the rest, including that second stimulus check. Stick to your budget and see if you can pick up extra work to help bolster those savings. If you lose your job or your hours are cut, this will help soften the blow and buy you time while you search for work.
Pay off debt
While many people are out of work or underemployed, others have been less effected. If your income is relatively secure, you’re not falling behind on bills, and you’ve already built up an emergency fund of three to six months of expenses, now is a good time to get extra aggressive about getting out of debt. Pick a debt elimination strategy, keep to your budget, and throw what you can at your debt, including your stimulus check.
Save for retirement or donate to charity
If you’re fortunate enough to have a stable income and no debt, you can look more long-term and put your stimulus cash toward retirement savings or an education fund for a loved one. Of course, another great option to consider if you’re financially stable is to donate your second stimulus check. Whether you give to a charity, help a struggling neighbor or local business, or support your church, the positive results of helping those in need can easily outweigh anything you might buy with an extra $600.
Regardless of how you use this cash influx, check back with Freedom Debt Relief to stay informed regarding future economic relief bills and a potential third round of stimulus checks.
Make a financial plan
Figuring out what to do with your second stimulus check is great, but it would be even better if it was just one piece of a more comprehensive financial plan. Thankfully, learning how to deal with debt, money, and planning for your future doesn’t need to be hard. At Freedom Debt Relief, we’ve developed a simple to follow guide with the tools you need to move to a better financial future. Get started by downloading our free How to Manage Debt guide today.
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