What should I do with my stimulus check?

By this time, Americans across the country have likely received their $1,200 of allowance from Uncle Sam. Others may be eligible but haven’t received theirs yet, so their payment is just around the corner. For those who are lucky enough to not need this payment to replace income or pay current bills, it has them asking the question, “What should I do with my stimulus check?”

A handful of “responsible” ideas come to their minds. “I’ll put it away for a rainy day. No, I’ll open an investment account and grow this for the future. Or maybe I should pay down my student loans or my credit cards.” Inevitably, other more “fun” ideas come to mind too. “You know what, I could use this for a down payment on a new car. Actually, flights are so cheap, maybe I should book a vacation for when this is all over.” You see how it goes.

While stimulus checks due to a worldwide pandemic may be a rare occasion, unexpected windfalls like this do happen, and it’s wise to plan in advance what you’re doing to with the extra cash whenever it comes in.

Establish a Process

Circumstances change, and your highest priority this year may not be as important next year. Because of that, a repeatable process that leaves room for flexibility is the ideal strategy. We recommend adopting this approach:

First, immediately carve some off the top and earmark it for giving. Times like this are another reason we love setting up a Giving Fund (a savings account set aside for charitable giving).
Next, shore up any current cash needs. This might mean restoring your emergency fund to its target level if it’s dipped below it. Or it could be topping off lumpy expense accounts that may be low or have a known expense coming soon, such as auto maintenance, health expenses, or home repairs. If your emergency fund is at its max, or none of your lumpy accounts “need” a little extra, that’s a great thing! You have more to save.
Finally, save as much of the windfall as you can according to the priority of your savings objectives. These objectives can include reducing debt, Roth IRA or IRA contributions, college savings, or saving into a general brokerage account for a major purchase or simply for long-term growth. At different points of time, the way you prioritize those goals will change, and that’s okay. The goal will always be to preserve as much as you can for savings.
As a bonus, it’s okay to have some fun with it. As long as you consider your various savings objectives first, and you’re satisfied with the amount you’ve saved towards them, it’s just fine to treat yourself to some of those more exciting ideas. Put a little extra in your Travel Fund, or go ahead and pull the trigger on that home improvement project you’ve been wanting to do. When the first three steps have been taken care of, it leaves you free to enjoy the surplus.

Better Together

Finally, sketching out a plan for how to allocate a windfall is a great opportunity for couples to connect about finances. If you have a regularly planned “family finances” meeting already, add this to the agenda. If you don’t, be sure to discuss it together before you allocate.

Much is revealed as you move through the steps of the process above. Perhaps one of you is unaware of a current cash need, and you wouldn’t have thought of it until this conversation. Or maybe you prioritize your savings objectives slightly differently from each other and this is the time where you hash out where you land right now as a family.

At any rate, the benefits to having a plan for how to handle windfalls are numerous. Now, go practice with your stimulus check.