Remember those super-helpful $1,200 stimulus checks and direct deposits that went out in the spring? That probably seems like eons ago, especially if you’re still going through a tough time financially because of COVID.
A new aid package could pass before Congress heads home for the holidays, and it’s looking like there will be more direct payments — though only $600 this time.
As Washington squabbles over the details, it’s a good time to plan what you’d do with a second round of government cash. Here are seven options you’ll want to avoid: the worst ways people used the last stimulus checks.
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1. Going on shopping sprees
Although it may be tempting to burn this “free money” on something you’ve always wanted, you should think twice before you splurge on a fancy new TV and a stack of Blu-ray box sets to ease your quarantine boredom.
Even if you don’t need your stimulus money to cover your monthly expenses at the moment, you’ll wish you’d set some aside if your financial situation changes.
Most financial advisers recommend keeping enough emergency cash saved up to cover at least six months of your essential costs. If you don’t currently have an emergency fund, the stimulus check is a great excuse to start one.
The smartest place to stash your emergency savings is a high-yield savings account, so your money will earn top interest and grow while you’re not spending or investing it.
And if you want to buy yourself a little treat, use a free browser add-on that will help you find better prices online.
2. Putting it directly toward debt
If you’re carrying a lot of debt, you might see the stimulus check as an opportunity to pay off a big chunk. Ordinarily that would be a wise move, but building up emergency savings is more practical right now.
You have other ways to deal with your debt.
The government has cut the interest on federal student loans to 0% and has been allowing borrowers to skip payments. But that relief is scheduled to end Jan. 31.
And if you got your student loan through a commercial lender, you’ve probably been required to keep making your payments all along. Even so, you may be able to reduce the amount you owe and shave a few years off your loan by refinancing.
There are companies that will let you compare refinancing options for free, making it easy to find a better interest rate that will save you thousands of dollars in interest.
3. Trying to ‘time the market’
The stock market has been taking investors on a white-knuckle ride since the start of the pandemic. While using your stimulus check to snap up discounted stocks isn’t a bad idea, trying to “time the market” for quick wins could wind up costing you.
When you spot a beaten-down stock, there’s no guarantee it will rebound anytime soon. In fact, during this time of instability, government moves, business decisions or surging coronavirus cases might cause the market to plunge again at any time.
If you’re eager to invest some of your relief payment, use an account that automatically makes adjustments to your portfolio in response to changes on Wall Street.
One popular investing app offers five different automated investment portfolios of varying risk levels, so you can find one that’s best suited for your financial goals.
You can add to your account with the help of a debit card linked to the app. Each purchase with the card is rounded up, and the “spare change” is tossed into your balance — to help grow your investments.
4. Thinking only about the here and now
It’s true that we’re living in a particularly frightening time, but the concerns of the future wait for no one.
A few years ago, the Government Accountability Office reported that half of American households 55 and older have no retirement savings whatsoever. Plenty of others don’t have nearly enough.
If you’re still of working age, putting even 10% of your relief payment into a retirement fund, maybe a 401(k) or an IRA, will pay huge dividends later in life
Not sure where to start? Find a company that can connect you with a certified financial planner online or over the phone. You’ll be able to prepare for your golden years even while social distancing.
Your CFP professional will craft a personalized plan based on your financial goals and tell you exactly what you need to do if you want to retire comfortably.
5. Using the money as an excuse to kick back
Extra money in the bank can lull you into a false sense of security. The hard truth is that during a global health crisis like this one, anything can happen — and even a hundred stimulus checks wouldn’t provide for a family that loses a breadwinner.
The easiest way to protect your loved ones is to buy a life insurance policy. A lot of people think getting insurance is a complicated process, but it can be as easy as booking a hotel online.
In just 90 seconds, you can find multiple life insurance rates tailored to fit your family’s needs. Depending on how old you are and where you live, you could get $1 million in coverage for as little as a dollar a day.
That’s a small price to pay for peace of mind.
6. Blowing it all at chain stores
Even though big-box stores might be the easiest place to do your shopping during the pandemic, your stimulus check will make more of a difference if you buy from local businesses instead.
You may save a few bucks at a chain, but failing to support your local economy at this critical time could have long-term consequences.
If you want shops and restaurants in your area to survive the lockdown, you need to make an effort to support them as much as possible.
Buy your groceries at independent markets — and be sure to use an app that gives you cash back simply for taking a photo of your receipt. Order takeout from different places in your neighborhood. And, if possible, donate part of your relief payment to local organizations that help individuals and businesses.
7. Stocking up on pointless supplies
Panic buying is a natural response, but using your stimulus check to hoard things you don’t need is expensive and wasteful.
Take all the people buying bottled water, for example. The water in your tap is treated and completely safe to drink.
Instead, just make sure you have a reasonable supply of essentials in case you’re exposed to the coronavirus and need to isolate yourself for two weeks. Be sure to grab:
Nonperishable food, for yourself and your pet.
Medications, both prescription and over the counter.
Household cleaning supplies to disinfect your living space.
If you plan to shop for these items online, download a free tool that will instantly search thousands of sellers to find you the better deals.