Should You Save or Invest Your Stimulus Check?

stimulus
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By now, many of you have received your stimulus check of up to $1,200 if you qualified and if you had dependent children 16 or younger, you would have received another $500 per dependent.

That means a family with two parents and two children under 17 years old, that can be a potential of $3,400. That is certainly not chump change.

That could be 425 cheesesteaks or 3,100 rolls of Charmin Ultra Soft toilet paper, but since you’re reading this article you’re probably smart enough to make better use of that money.

So, what should you do with your stimulus money instead of buying junk food or a life-time worth of toilet paper?

I believe the options are to:

  1. Pay off debt
  2. Save it
  3. Invest it 
  4. Spend it
  5. Donate it

Today, I’ll be going over the first 3 options. Let’s begin!

Pay off Debt

I used to carry a ton of student-loan debt, so I understand how it feels to go to receive your paycheck and see a good chunk of it just vanish. In normal times, I would suggest crushing your debt as quickly as you can, but we know that we are not in normal times. 

In times like these, it is good to throw some caution to the wind, especially when people are filing for unemployment at record levels.

Before you put any more money paying off your debt.

You will need to consider how much of an emergency fund you need if you were to lose your job. In a global pandemic, a $1,000 emergency fund will probably not cut it. Heck, a 3-6 month emergency fund may not even cut it, but it is a darn good place to start especially if your industry is one that is largely affected by COVID-19.

If you do not have a sufficient emergency fund and you feel you could be next on the chopping block, I would put myself in survival mode.

  • Begin cutting expenses to boost your savings. 
  • Start clipping coupons if you haven’t already. This is a great resource to sometimes get things for free if you’re savvy enough. 

I will be producing an update on what I have done during this crisis to help improve my financial security during this time. If you don’t want to miss it, be sure to subscribe.

Save

For most people, it probably makes the most sense to save most of their money for necessities because they feel uncertain about their job and probably uncertain about the stock markets.

If you are planning to build yourself up a cash cushion, just do so figuratively. I would recommend placing it in a high-yield savings account rather than stuffing it in a random couch cushion.

I enjoy using Discover because it has a great user interface and it syncs up with my credit cards really well. Plus, you can open multiple savings accounts and name them whatever you’d like. Here is a link where you can earn an additional $150 to $200 bonus, a little warning is that the qualifying deposit is steep.

If the link expires, discover frequently has this promotion and just type in “discover online savings promotion” and you should be able to find out if they are still running a version of the promotion.

  • What you’ll get: $150 or $200 bonus
  • Where it’s available: online, nationwide
  • How to earn it:
    • Apply for your first Discover Online Savings Account by 5/11/20, online or by phone.
    • Enter Offer Code OBG420 when applying.
    • Deposit into your account a total of at least $15,000 to earn a $150 Bonus or deposit a total of at least $25,000 to earn a $200 Bonus.
    • Deposit must be posted by 5/25/20
  • When it expires: 5/11/20

If you want a slightly higher annual percentage yield, I’d head over to CIT bank who usually offers a competitive lead in terms of yield.

Invest

If you have saved up a decent-sized emergency fund and COVID-19 doesn’t really impact your job security and cash flow, then, by all means, stick with your investment strategy.

However, if you are new to investing, I would caution the excitement surrounding the thought that “everything is on sale!” As of April 26, 2020, the S&P index is around 2800 points. The last time it was this low was May 2019. At most, the clock has been rewinded about a year. This begs the question: If you didn’t invest a year ago, what is different this time?

This is one of the many benefits of having an investment policy statement developed. So you can pivot quickly in times of uncertainty. I have created a template for you to work from FREE to download.

Free investment policy template

For the new and the seasoned investor

Questions new investors should ask themselves

  • Did you pay off a ton of debt since and are in a better place to invest?
  • Have you been reading up heavily on what you would like your ideal asset allocation to be?
  • Did you learn something new about your risk tolerance?
  • Have you saved up a larger emergency fund allowing you to pursue other opportunities?
  • Have you learned about what investment strategy you are planning to utilize and which investment vehicles you plan to utilize?

One thing is for sure, do not sacrifice your emergency fund for the sake of opportunity cost, especially if the opportunity is a questionable one.

You will have to ask yourself, is the potential gain in the stock market worth the potential pain if you do not have enough money in the bank to cover an emergency?

I would only recommend investing if you have a 3 – 12 month emergency fund set up depending on how stable your job is right now.

However, if you have enough saved and you want to take advantage of this time, the safest thing to do is probably to contribute more to your 401k, especially if you didn’t contribute as much as you would’ve liked to in the past. If you don’t have a 401k, you may open a traditional or Roth IRA which each have their tax advantages.

What am I going to do with it?

Photo by Alec Favale on Unsplash

My wife and I have a decent emergency fund that should last us at least a year if we were to become unemployed. Unfortunately, my full-time job is much less secure now than it used to be.

That being said, I will save it in a high-yield saving account for now, but who knows what I might do if I am feeling a little bullish.

If you like what you’ve read, please consider subscribing and sharing.

Free investment policy template

For the new and the seasoned investor

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