Yesterday President Biden signed the $1.9 trillion Covid relief bill, and that new bill includes another round of stimulus payments for Americans. Each eligible person will receive $1,400, meaning a family of four could receive as much as $5,600. The checks will go out over the next few weeks.

Check your stimulus status on the IRS website with the “Get My Payment” tool.

Many Americans are wondering: what should I do with this extra money?

I will NOT buy my own flock of parrots

10 Smart Ways to Use Your Stimulus Check

  1. Start a basic emergency fund of $1,000 – Many personal finance experts agree that establishing even a basic emergency fund of $1,000 is one of the best ways to help cover the unexpected. After witnessing the devastating effects of COVID-19 I’ve increased my own emergency fund.
  2. Pay off debt – Hold on there before you click that button to pay extra on your outstanding debts. Getting rid of debt is great, but you need to examine what kind of debt you have. If your debt interest rate is above 10%, I consider “top priority” debt. Pay on these first, even if you have lower balances elsewhere. The relief from compound interest working against you can be just as rewarding as clearing small debts. If the debt carries no interest, leave it alone and pay it on the existing schedule.

Nearly two-thirds of 40-somethings have less than $100,000 in retirement savings and 28% of those in their sixties have less than $50,000.

“Here’s how much Americans have saved for retirement at different ages” by CNBC

  1. Add extra money to your retirement account – To cover $40,000 in expenses per year for at least 25 years, you need at least $1 million in a retirement account invested in index funds. This amount would allow you to take $40,000 a year and never touch the original contributions (95% of the time, this means you’ll never run out of money in retirement). Unless you’ve already invested a million dollars in your future, add some dough to your retirement accounts.
  2. Add money to your HSA (if you have one) – Did you know you can use your HSA to grow your money tax-free? Add money to the HSA up to the current limit, invest it into low-cost index funds, and instead take that money out when you have a medical expense hang onto the receipts, and cash them out later when you need the money. (Yes, this perfectly legal.)
  3. Pay off debts that are in the 1-5% interest rate range – If you’ve exhausted your tax-efficient methods above, NOW pay off lower interest debts. Why? Your money will grow faster invested than you will save by paying off these lower interest debts.
  4. Open an investment account with Fidelity or Vanguard – This is not as hard as it sounds; I opened my first investment account last year with minimal effort. It’s similar to setting up a bank account. You’ll deposit money into an account that’s a basic savings account, and from there, you can invest it. I’m not advising you to pick stocks here; pick index funds like FXAIX (this is Fidelity’s version of the S&P 500 index fund). You want to pay attention to the expense ratios when investing; these are the expenses associated with owning shares of that index fund. Anything 1% or above will cut into your profits a lot once compounding is applied. Buy your index funds and leave them alone to grow. 
  5. Invest in yourself – Sign up for a class or online course for something you’ve always wanted to learn. The best thing about learning is that it’s an asset no one can ever take away from you. 
  6. Use the money to start signing up for bank bonuses – Many bank bonuses simply require that you open a new account and leave a balance for a few months. Bank bonuses are a great way to grow your money even faster than using traditional savings or CD accounts.
  7. Donate to a charitable cause – If you feel you don’t need the money, donate it to someone that needs it more than you. If you want to supercharge your donation, check out opening a “donor-advised fund” for your favorite charity. Donor-advised funds are similar to an investment account, but you open it for a charity, and it keeps generating more money for them, like planting a little money tree that keeps bearing fruit.

10. Put the money in your kid’s college fund – Investing in your kid’s future is a great way to help them hit the ground running BUT make sure your future is fully funded as well. I’m going to defer to the directions flight attendants give you about oxygen masks. Always put yours on first before you help your children. Taking care of yourself first may seem harsh, but retirement comes up fast, and you’ll reach a point you can no longer work before them (in most cases).

What are your plans for your stimulus check? Share your strategies below in the comments.

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