This spring, as the COVID-19 pandemic worsened, Americans got a boost in their bank accounts in the form of government stimulus checks. Qualifying adults received up to $1,200, along with another $500 for each child 16 and under.
The goal was to encourage spending and limit any financial stress that consumers were facing as furloughs and job losses piled up. But most Americans didn’t spend their stimulus checks on day-to-day expenses or one-time splurges. In a survey from the Becker Friedman Institute for Economics at the University of Chicago, just 15% increased their spending because of the stimulus check.
Instead, they looked to their long-term financial health, opting to save or pay off debt. About 33% mostly used the money to increase their savings, according to the survey. Another 52% mostly used it to pay off debt.
There are proposals in Congress for a second stimulus, but federal lawmakers are unlikely to agree on one this fall. (And if you’re among the 9 million people who have not received their stimulus check, here’s how to ask for it.)
But another stimulus check could eventually come. And households get unexpected payouts in other forms too, including tax refunds, inheritances and work bonuses. And the way Americans spent their stimulus money should guide them as they receive those surprise payments into the future.
Pay off debt
If your debt is growing, particularly high-interest credit card debt, pay off as much of it as you can with any unexpected bonus or payment. Paying it off more quickly means you save money on the interest that keeps growing as long as you owe money. Once you pay down the debt, make sure you don’t let yourself rack up more. Plan to only charge as much as you can afford to pay off each month.
Build up your emergency fund
Emergency funds come in handy during uncertain times like these. They can support you after a job loss or cover a costly and unexpected home repair, for example. Financial experts recommend having at least three months’ worth of spending squirreled away for a rainy day. But if you’re starting from nothing, there’s no shame in starting small. Even a $1,000 emergency fund can make a difference when times are tight. A surprise infusion of cash can make for a great start or supplement to your emergency fund.
Do you dream of buying your own home? Going on a vacation someday? Helping your kids with their college costs? The next stimulus check or tax refund can go toward a down payment, a vacation fund or your children’s 529 accounts. Use that unexpected money to move you closer to your dreams.
Prep for retirement
Most Americans want to retire by the age of 67, according to a TD Ameritrade survey, but many aren’t prepared for it. About 20% of people in their 70s have less than $50,000 saved for retirement. An unexpected pot of money could help to supplement what you’ve already saved or get your retirement savings started, so you have the money you need to support yourself when it’s time to step away from the working world.
It’s always tempting to treat ourselves when we bring home a bigger paycheck or holiday bonus. And there’s nothing wrong with a little splurge. But making our money work for us — whether it’s drawing down debt to reduce those bills or saving it for the future — is a smart way to use any unexpected payouts.
If you are experiencing financial difficulty and are looking for a solution, CESI is here to help. Our counselors are available to assist if you are experiencing job loss, temporary loss of income or financial hardship during this time. Contact us today for a free financial assessment with one of our certified credit counselors.
Consumer Education Services, Inc. empowers people to overcome their financial challenges and lead financially-healthy lives.
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