How I Spent My Stimulus Check
By now most people have received their stimulus checks. Like many others, I felt it was my duty to spend the money as quickly as possible to help stimulate the economy. After all, that was the Government’s intention when announcing the refund, right? Well after dreaming of all the wonderful things I could use the money for, I started to realize there were better options than just spending it on material goods or a night out on the town. More urgent day-to-day needs and my longer term retirement goals came to mind.
While I was thinking through my own financial situation, I realized that it might be useful to share how I prioritized potential uses for my stimulus check. At the top of my list are the day-to-day expenses that we all have such as food and gas. With gas prices reaching all time highs and about to pass $4.00 per gallon, people have to pay more and more each time they go to the pump. My co-workers and friends are now paying anywhere from $45 to $100 to fill up their car or truck, and as a result have far less for things like going out to dinner.
After accounting for day-to-day living expenses, I turned my attention to high interest credit card debt. If you consider the average household credit card debt is roughly $3,000 with an APR around 19%, it makes sense to try to pay it off as soon as possible. In fact, a survey by the Harris Poll revealed that 38% of respondents said they will use a lump of their rebate checks to help pay off credit cards. With such high interest rates, especially those with APR’s above 15-16%, it only makes sense to use this money to pay off credit cards.
Next on my list would be adding to an emergency fund or possibly funding an investment account. In the Harris Poll mentioned above, over 35% said their rebate checks were going straight into their savings account. I think this is a great idea for those that are building an emergency fund and suggest six months of living expenses as a goal. If you have your day-to-day expenses accounted for, don’t have high interest credit card debt and have an emergency fund built already, you might want to consider investing it.
By using the stimulus check for these expenses, you will free up some money from each paycheck. I’d suggest investing this portion and increasing your contributions to your 401k. Unfortunately, I have seen a recent trend where people are doing the opposite, and are actually reducing their 401k contributions. This trend will have long lasting effects. You might not see it now or in a year, but 10, 15, or 20 years from now, you will see the dramatic effects. (To see how a change as small as 1% could affect your retirement plan try the “What May My 401k Be Worth?” calculator on the Calculate Your Progress page.)
There are many different options for how to use your stimulus check. Instead of feeling obligated to spend the money on electronics or entertainment as I first did, I simply ask that you take a look at all of your options and decide what is best for you and your family.
Jeff Studebaker, Investment Advisor
