Millions of Americans are now receiving another stimulus check; up to $1,400 may be in the mailbox or a banking account for 100 million Americans. This extra money has the potential to be extremely helpful to many and can be rewarding years into the future. But how can you ensure you make the most of your stimulus check?
First, take care of the basics. If you have fallen behind on high-priority bills due to the pandemic, such as housing or utilities, or even putting food on the table, then this stimulus check should help to catch up. But if you have remained employed and are current on your bills, consider putting your check to work. It isn’t every day that an extra check arrives in the mail. Here are six smart ways to make the most of your stimulus check.
Pay Off High-Interest Debt
If you’re carrying credit card debt like many Americans, you may be paying 15 percent in interest or even more. Once you get into debt, it can be hard to get out. So, using this check to pay down debt can not only help you get out of debt more quickly, but also can eliminate a monthly payment. Plus. when credit is freed up on your account, you’ll have a better debt-to-income ratio and therefore your credit score may go up, which could qualify you for lower interest rates.
Contribute to a Roth IRA
You still have until May 17th to invest in a Roth IRA for 2020. Or if you have already maximized your contribution for 2020, you may invest for 2021. A Roth IRA allows you to withdraw your money tax-free in retirement, unlike a Traditional IRA. The sooner you invest your stimulus money, the more time you’ll have for your money to work for you. If there are future tax rate increases, this type of account can be a helpful part of your retirement plan.
Choose Investments Wisely
If you’ve been cutting back on your investment purchases this year, you may want to recoup lost ground by investing your stimulus check. However, taking a gamble by choosing volatile stocks such as Gamestop is not the best choice. Take the opportunity to diversify, but before investing, contact your financial advisor to ensure you’re on the right track.
Invest in a 529 Plan for a Child
If you have children or grandchildren, it may be rewarding to make use of the extra money by planning for their future. Placing the money in a 529 account allows the money to grow tax-free and you may continue to contribute small amounts regularly. Your state may offer a tax benefit as well. Long-term growth in a child’s 529 account can help create security into adulthood.
Increase Your Emergency Fund
Building or maintaining an emergency fund is not easy even when there is not a pandemic. According to Bankrate, only 16 percent of adults feel comfortable with the amount in their savings account. Ideally, you should have around six months of living expenses in a savings account for emergencies. The stimulus check can provide the chance to replace an emergency savings that has dwindled or to get a head start on building one. Online banks can sometimes offer higher interest rates on savings accounts without a monthly fee, making it even easier for you to save.
Gift to a Family or Local Business
If your finances are in order and you’re feeling generous, donate your check to a family in need or even a local business. You may even be able to deduct some of your donation on your 2021 tax return if you claim the standard deduction. The charitable deduction for non-itemizers has been extended for 2021, allowing single filers a deduction of $300 and married couples filing jointly a deduction of $600. Giving back during trying times can be rewarding.
If you have questions on making the best use of your stimulus money, please schedule an appointment on Bayntree’s online calendar by selecting the date and time that is most convenient for you! You can also always reach us by emailing firstname.lastname@example.org.
Bayntree Wealth Advisors provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.
Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.