The latest round of $1,400 stimulus checks is making its way to eligible Americans.
Now, those people have an important decision to make — what are they going to do with the extra money?
Investors between the ages of 25 and 34 plan to spend half of stimulus payments on stocks, and those 18 to 24 will spend about 40% on the assets, a recent survey from Deutsche Bank found. Stimulus payment tracking data from Cardify.ai, a market research company, found that respondents plan to spend 32% of their checks on stocks or cryptocurrencies.
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So-called meme stocks have been on a wild, retail-investor fueled ride as of late. GameStop in recent months was driven up in part by traders from Reddit looking to squeeze hedge funds betting against the company. The stock tanked 33% on Wednesday following the company's quarterly earnings report, but then erased the loss in midday trading Thursday.
Financial planners generally advise that people use their stimulus checks to shore up personal finances and build for the future.
Still, some may want to allocate part of the windfall to a hot stock.
"As long as they understand that it's a gamble and not the true path to wealth, that's okay," said Jessica Goedtel, a certified financial planner and lead planner at Facet Wealth, registered investment advisor in Baltimore.
"But, times like this are really good opportunities where we can reevaluate where we're trying to go in life and what we're trying to do with our money," she said.
Boost your emergency savings
This year especially has highlighted the importance of having some emergency savings in the bank, making such an account a great place for some of your latest stimulus check.
"If someone doesn't have an emergency fund, that's a good place to start," said Anjali Jariwala, CFP, CPA and founder of FIT Advisors in Torrance, California.
And, you don't necessarily have to allocate your entire check to savings if you have multiple financial goals. Studies have shown that even having small amounts of money saved, such as $100, can keep families from adverse events like having utilities shut off or needing to move.
Pay down debt
If you have any outstanding debt, putting all or some of your stimulus check towards it is also a solid financial idea.
Experts generally advise starting with high-interest debt, such as credit cards, first. The more you can pay down, the less you will pay over time as interest accrues.
The checks could also go to back-owed rent, or to pay off auto loans or personal loans. People could also put the money towards student loans, although most payments are currently on pause due to the pandemic.
Invest in a well-balanced portfolio
If you are going to invest your economic impact payment in the stock market, experts generally advise that you put that money into a well-balanced portfolio meant to grow over time. This could be in a retirement account or other investment account that's invested in a range of stocks and bonds, depending on your timeline.
"Invest your check today and let it sit for 20 years," said Stephanie Trexler, CFP, CEO and financial advisor at Golden Goose Wealth Planning in Grand Rapids, Michigan. "That's going to pay a lot of dividends."
It's also a much better bet than investing in a volatile single stock, where all your eggs are in one basket, Trexler said.
Contribute to a retirement account or 529 plan
You could also put some of the money towards your or a child's future by investing it in an individual retirement account, a health savings account or even a 529 plan.
Investing in such accounts is another way to grow your money over the long term.
If you didn't make the maximum contribution to an IRA or HSA in 2020, you could put the money in such an account now, ahead of the deadline. If you have yet to file your 2020 taxes, this move could also potentially help you lower your adjusted gross income to qualify for other tax breaks.
If you are on solid ground with your finances including retirement savings and an emergency fund, you may also want to spend it.
"We get really caught up in just making sure money is being invested or used appropriately," said Jariwala. "But, you know, we should also be rewarding ourselves for the hard work that we do."
That might mean carving out some of the stimulus check to take a trip in the future or purchase an item you've been saving for.
The extra money could also be used for self-improvement, such as taking a class to build on a skill you already have or develop a new one.
"Find a therapist without worrying about the costs, because let's face it, it's been a rough year and anyone could use a friendly ear," said Goedtel. "Whatever it is, the best investment you can make is in yourself."
You could also use the money to help others.
One way is to spend your check boosting your local economy by shopping at small local businesses that might have been hit hard by the pandemic, such as restaurants. Or, you could donate all or a portion of your check to a local charity.
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