It’s likely that a lot of people are poised to receive a stimulus check from the government in the upcoming weeks. Depending on your personal situation, there are several approaches to utilizing these funds. There are two scenarios that deserve some thought:
If you are still employed, this money is like a bonus. Here are some of the best choices you can make:
- Take a look at your Emergency Fund: how long would you and/or your family be able to continue to live your current lifestyle with the money you have saved? If you need to bump this portion of your savings, this may be a great option in planning ahead.
- Do you have some looming debt? If you have outstanding debt, the money could be used to pay these obligations. To decide which debt gets paid, make a list of all of your debt, including the balance, the interest rate and the minimum payment due. Once you have this information you can evaluate if you should:
- Pay the debt with the highest interest rate first: this strategy is often referred to as the “ladder strategy.” In order to be effective, you will pay extra only on the debt with the highest rate, while paying the minimum on all of your other debt. Once you have the first bill on this list paid, you move on to the next highest interest rate debt, and add the payment you were previously making on the first debt.
- Pay the smallest debt first: this strategy is called the “snowball strategy,” and it’s my personal favorite! This form of debt repayment is implemented by organizing your bills from the smallest balance to the largest balance. Any extra funds are applied to the bill with the smallest balance. Once that bill is paid, you will apply the money you’ve been paying to the first debt and add it to the next one.
- The “regret” method: Do you have a bill that haunts you every month? Maybe you made a spending decision that you now regret and every time you see the bill, you have a negative reaction to it. This may be the bill you decide to tackle first!
- Pay the bill with the highest payment: once you have organized your bills, you may consider targeting the bill with the highest balance. This is called the “Kiyosaki Method” and is a great option if you are operating on a tight budget.
- Treat Yourself! If you are employed, have no debt and an ample savings account, you may be able to use these funds to have some fun! Ask yourself, “what would enhance my life in terms of my values?”
The extra income that is received in this way can be a lifeline for some, and a bonus for others. If you need this money to make it through the foreseeable future, spend it with care. As tempting as it may be to put some “wants” before your “needs” the stimulus is intended to help you bridge a gap in income. Handle it like a paycheck and stay within your budget if you can.
Stimulus checks are meant to stimulate the economy by putting more money in your wallet-remember that your personal economy comes first! Take care of your family and current obligations before sharing these funds with the outside economy!