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Ah, new money. But should you invest your stimulus check, or not? For many Americans, January 1st, 2021 started with an extra $600. For everyone else, the stimulus money has slowly but surely been rolling out. The second round of stimulus checks have been issued, and are starting to hit accounts! While it is half the amount of the first round, this is still a nice influx of money that can, and should, be put to good use. 

What is the best move to make with this money? Are you responsible for stimulating the economy with this cash, or should you invest your stimulus check? What are the considerations you should make before you think about investing?

Should you be “stimulating” the economy, or should you invest your stimulus check instead?

There is no “right” or “wrong” answer on this, but you should definitely be making a conscious choice with this new money! Before you spend your money, consider some long-term effects this $600 could bring. And before you go all-in on Tesla or Bitcoin, make sure your current financial needs are being met!

You SHOULD NOT invest your stimulus check if…

You have bills to pay. This check is designed to provide some financial relief during a global pandemic. If you have been adversely affected and your income is suffering, use this money to get caught up on bills. Does your income fluctuate? Consider getting a head start on next month’s bills.

It’s true, $600 will not get very far in terms of household bills. But if you are a couple getting $1200, or have children, this can quickly add up! Parents or guardians will also receive a $600 stimulus for each child. Stimulus checks for larger households will certainly see this money stretch further.

If investing a portion of your stimulus just isn’t going to happen, that’s fine! Allocating some, or all, of this stimulus money to cover your living expenses is a great idea. Remember, this is what the money is intended for!

DON’T invest your check if you don’t have an emergency fund

If there is one thing this pandemic has taught us, it’s the importance of having an emergency fund. The world can quickly change. The rapid change in this pandemic caught many off-guard, and the ones without savings suffered the most. We are still in uncertain times and don’t know what the future will bring.

A rule of thumb, if you are starting your emergency fund, is to save $1,000. But, having savings that can cover 3-6 months of living expenses might be more ideal. A buffer of a few months can provide a lot of peace of mind! This is the difference between stressfully trying to replace your income… and being able to breathe easy, even if your income is suddenly cut off. 

If you don’t have an emergency fund that is able to provide you peace of mind, don’t invest your stimulus check! Consider parking your stimulus check into a high-yield savings account instead. Don’t feel guilty about not “stimulating” the economy with this extra cash. You taking care of yourself financially and being able to afford emergencies IS good for the economy!

WHERE should you be investing?

If you are comfortable with your bills, debt, and savings, your next smart move with this money just might be investing. There are a lot of places to invest right now, and the U.S. stock market has been doing extremely well lately, especially considering we are in a global pandemic!

Even after deciding to invest some of these funds, you have to ask, invest them where?

Five places to consider:

  •  Retirement

Do you want to invest your stimulus check-in a tax-advantaged account, and reap the benefits in your retirement years? 

  • Business

Or do you want to put some of this money into growing your business, and make your work life easier?

  • For your children’s future

If you have children that you received stimulus money for, is it a priority to put some aside for their future, or education?

  • In Bitcoin

Granted, this is possibly the LAST place the government wants your stimulus money to go… Nonetheless, Bitcoin has been breaking all-time highs recently and has gotten quite the attention from new investors!

  • For pleasure!

Or will you simply be putting money aside for a future experience or goal, hoping it grows for a future experience or vacation? 

The longer period of time you have, the more impactful your dollars will be when they are invested. If you have goals that are more than five years away, investing your stimulus check (or part of it) might be a consideration to help reach these goals faster!

Remember to always do your due diligence and research your investment decisions! Investing in the stock market includes risk, and your principal can be lost. The further away your goal is, the more time you have to average an even, higher, return. That’s why investing for short-term goals is typically not recommended. 

Investing your stimulus check into your retirement account

If you are behind on retirement savings, perhaps a portion of your stimulus check could go towards your future. Retirement is a giant goal that many people put off later than they should. While saving small amounts consistently over a long period of time is ideal, extra money from windfalls, bonuses, or stimulus checks is a great way to grow your nest egg.

The money you put away in retirement accounts typically cannot be accessed before age 59.5. At least, not without risking a penalty. There are workarounds, like being about to pull out Roth contributions without penalty, but for the most part, this money is designated for the future. This also means it has more of a chance to grow! If you want to get inspired by the potential growth of your investment, plug it into a compounding calculator to imagine the potential.

You have until April 15th, 2021 to make contributions into Roth, Traditional, and SEP IRA’s for 2020. The contribution limit is $6,000 (or $7,000 if over age 50). If you have not maxed out your retirement accounts for last year yet, investing your stimulus check there would be a good idea.

Investing in your business

Are your at-home financials taken care of, and are you thinking of focusing these funds elsewhere? Receiving this check at the start of a new year may help your business get off to a great start! Are there any purchases you have been holding off on? Are there things that would help you grow your business, save time, or save money?

Consider putting this money, or some of it, towards something that will help you earn more revenue in the long-run. Sure, $600 won’t get you a sporty new company car, but a few hundred dollars can go a long way! Consider new online systems like calendars, editing software, or customer management systems that can make your life easier.

If you plan on investing your stimulus check into your business, don’t forget other potential savings. Appropriate business write-offs can be deducted from your taxable income, giving you more tax savings!

Investing your child’s portion for their future

This round of stimulus checks didn’t forget the kids! Each child or dependent also received $600. While some parents will hold onto the money, others may gift some to their children. But have you considered investing some of this for your child’s future?

If you want to put money aside for your child’s education, consider socking some of this stimulus money away in a 529 plan on their behalf.

If you prefer helping your child invest for their future in a non-educational account, look into a custodial account. The  UGMA (Uniform Gift to Minors Act) or UTMA (Uniform Transfers to Minors Act) accounts commonly used as investment accounts for minors. These accounts in your child’s name, with you, listed as their guardian. Once your child reaches a certain age, the account becomes fully theirs. Ages range from 18-25, depending on your state.

Invest your stimulus money into Bitcoin

I wouldn’t be surprised if stimulus check investing is part of the reason Bitcoin has been breaking all-time highs recently! But just because it seems like everyone is doing it, is now the right time to be investing your stimulus check into Bitcoin?

What’s different from that last giant run we experienced in 2017? Well for one, Bitcoin is a lot more accepted now than it was then. Larger institutions are investing in this cryptocurrency, it has been added to PayPal, and there are even talks of Visa credit cards that will give rewards in crypto. This was not the case two short years ago!

Whether or not this is the “right” time to invest, nobody knows. Bitcoin is considerably more volatile than investing in the stock market. Just look at the recent climb in price! Remember, volatility works both ways, and the price can just as quickly move in the downward direction. Investors should understand the risk involved before making any investing decisions.

Investing your stimulus check for something fun

If one thing is certain, 2020 has been quite the year. And by the looks of the first few days in January, we are continuing a similar trend. If you want to put this money aside for something relaxing and enjoyable, go for it! 

Putting money aside for experiences, traveling, or future vacations isn’t a bad idea. Saving for upcoming trips helps avoid credit card debt, and more time spent saving and planning can help create the perfect trip!

Top tip,  if you leave your money in a high-yield savings account as you wait for vacation time, you could even pick up a few extra bucks in interest!

Are you going to invest some of your stimulus money?

Remember, there are a lot of financial needs that should come BEFORE investing! Are the bills are covered? Are you sitting on a pile of high-interest credit card debt? Take care of these before you think about investing!

Ensuring you have adequate savings to cover emergencies should be next on your checklist. Common emergency fund goals are a minimum of $1,000, or 3-6 months of expenses. This is a big range, so make sure you are adjusting your amount to suit your needs or the needs of your family!

Are your financial needs covered? Great! Consider putting some of this stimulus money to work in investment accounts! Whether you are putting money away for your future, your child’s future, or making a speculative vacation play with cryptocurrency, make sure you are doing your research and making an educated decision!

And who knows? Maybe this $600 stimulus check will turn into a lot more!

 

*All investing is subject to risk, and the investments discussed in this post are not investment advice. You should do your own research before investing and consult a financial or tax professional.

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Alicia Dion is a personal finance expert, financial coach, and founder of Friend of Finance. She loves creating content that helps people understand and overcome their fears around investing, and helping others unlock their potential to build wealth. She was formerly a financial advisor for retirees and is now sharing her industry insight through writing, coaching, and financial courses!

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