The stimulus checks Americans received during the pandemic have been a welcome relief in these financially trying times. Many recipients may be wondering: What is the best way to use this money?
To help you determine the most financially responsible course of action to take with your Economic Impact Payment, Scott Credit Union has compiled a list of advice and tips from financial experts and advisers.
Cover your basic life expenses
First and foremost, make sure you can afford to cover your basic necessities. Most financial experts agree that it’s best not to make any long-term plans for stimulus money until you can comfortably cover everyday expenses.
Charlie Bolognino, CFP and owner of Side-by-Side Financial Planning in Plymouth, Minn., says this step may necessitate creating a new budget that fits the times. With unique spending priorities in place, an absent or diminished income and many expenses, like subscriptions and entertainment costs, not being relevant any longer, it can be helpful to reconfigure an existing budget to better suit present needs. As always, basic necessities, such as food and critical bills, should be prioritized.
Build up your emergency fund
If you’ve already got your basic needs covered, start looking at long-term targets for your stimulus money.
“I would immediately place this money in my emergency fund account,” says Jovan Johnson, CEO of Piece of Wealth Planning in Atlanta.
Emergency funds should ideally be robust enough to cover 3-6 months’ worth of living expenses. If you already have an emergency fund, it may have been depleted during the pandemic and need some replenishing. If you don’t yet have an emergency fund, or your fund isn’t large enough to cover several months without a steady income, you may want to use some of the stimulus money to build it up so you have a cushion to fall back on during lean times.
Pay down high-interest debts
According to the Federal Reserve Bank, Americans owed a collective $930 billion in credit card debt during the fourth quarter of 2019. Using some of your stimulus check to pay off high-interest debt would be a great way to get a guaranteed return on the money, says Chris Chen, of Insight Financial Strategists in Newton, Massachusetts.
This advice only applies to credit cards and other private, high-interest loans. The federal government put a temporary freeze on most student loan debts, so they should not be as high a priority right now.
Boost your savings
If your emergency fund is already full and you’ve made headway on your debt, it can be a good idea to use some of the stimulus money to add to your Scott Credit Union savings account. The money in your savings can be used to cover long-term financial goals, such as funding a dream vacation or covering the down payment on a new home.
What should I do with the check if I think the IRS made a mistake?
The IRS determines who receives a stimulus check and for how much by using information from your most recent tax returns on file. If your household or income has changed since then, the check you received may not be what you expected. Here’s what to do if that happens.
If you received a check in the name of someone who is deceased, you’ll be required return the payment to the IRS. The entire payment should be returned, unless you filed your taxes jointly and the check was made out to both you and your deceased spouse. Then, you would only need to return your spouse’s portion of the payment. Information about how to return an Economic Impact Payment is included on the IRS website.
If you think you received more than you should have, the money is yours to keep! According to the IRS, “there is no provision in the law requiring repayment of a Payment.”
If you think you received less than you should have, you may be eligible to claim a Recovery Rebate Credit. See the IRS website for more details.
For more detailed information about the Economic Impact Payment, we encourage you to visit the IRS website. The agency has comprehensive information about the stimulus, including who’s eligible and how your payment is calculated.
More from the Banking Simplified Blog:
A Guide to Prioritizing Bills During a Financial Crunch
Money Matters in Tough Times
More from the Scott Credit Union Website:
COVID-19 Resources Page
Your Turn: How are you spending your stimulus check? Tell us about it in the comments.