Under the newly passed COVID-10 stimulus bill, millions of Americans will receive a second stimulus check. The second payment will be $600 per person (may increase to $2,000 per person) plus an additional $600 per child. To a lot of Americans, they will need to use this check to make up for lost income so they can eat and have a house to live in. If you are one of the fortunate Americans to still be employed and not in financial distress, you have options on what to use your check on.
Due to the current dining and travel restrictions, it will be very hard to waste your check on eating out or a vacation. Instead of wasting the money on something you don’t need, it would be wise to invest or save the money.
Save For Retirement
Putting the money away for retirement is a smart move. You have until tax day (April 15, 2021) to invest in an IRA or Roth IRA for 2020. 2020’s maximum contribution is $6,000 for the year or $7,000 if you’re 50 or older. If you have gotten behind on retirement savings this year, you could put the check in your IRA. There are plenty of funds out there like an index fund or some of my favorite, target retirement date funds. Target date funds will invest in a mix of equity and bonds and slowly move towards more bond exposure (less risky) the closer you get to retirement.
Paying Off Debt
Looking to pay off your higher interest rate debt, most likely your credit card debt can potentially remove a bill from your monthly expenses. Paying off your debt, especially your high-interest rate debt, is giving you a good rate of return.
Increase Your Emergency Fund
Even though you may still be employed, you may not feel comfortable about your situation. The pandemic is not over yet and you could still experience a loss in income. It is best to have three to six months of living expenses saved. It is smart to save your emergency fund in a high-yield savings account that offers no minimum balance or fees.
Donate It
If you still have a stable and steady income and your finances are all in order, you could consider donating the money. You can donate the money to people who need it more and would be able to deduct a portion of your donations from your 2020 (or 2021) tax returns. Even if you claim standard deductions, you can still deduct a new “above the line’ dedication in 2020 and 2021 for up to $300 in cash donations.
Save For Education
Maybe you plan on going back to college or have kids. You can contribute to a 529 college savings plan that will allow the money to grow tax-free. Additionally, the withdrawals are also tax-free if they are used for qualifying education expenses. Lastly, your state may give you a tax deduction or tax credit if you contribute to its plan.
Support Small, Local Businesses
A lot of local businesses are struggling right now. You could buy gifts or gift cards from a business you will use in the future. Buying gift cards or gifts right now will provide the business with much need cash to weather the COVID-19 shutdown. Additionally, when the pandemic is all said and done, you can treat yourself to something nice.
You don’t have to pick one of these options. You can do a mix of the bunch or use it on something else you may need. Your financial situation is different than every other American and you should use the money to meet your needs.