Many of us likely received a $1,200 federal stimulus payment intended to help cushion the financial blow from COVID-19.
For some, that money is critical — perhaps you lost your job due to the coronavirus and every dollar of the $1,200 (plus $500 per child) will go toward groceries and rent.
For others who are still earning an income, the check is more of a helpful windfall during an uncertain period. If that describes you, below are several prudent financial ideas for how to use it.
1. Build an Emergency Fund — and Grow It Much Faster
If you’re among the millions of Americans without an emergency cushion, now is a great moment to begin one. In short — tuck your stimulus payment away for unexpected expenses.
One effective way to prevent dipping into those funds is to keep them separate from your daily checking account. Consider moving the stimulus money into an online savings account that offers a higher interest rate than a traditional bank.
A mobile banking service called Varo is one example. Whereas the average savings account yields a meager 0.06% APY*, Varo offers more than 23 times that return. Plus, there are no monthly maintenance fees.
Opening a new account might not be thrilling, but Varo simplifies the process. You can start an account with as little as one cent, and over 750,000 people have already signed up.
*https://www.fdic.gov/regulations/resources/rates/
2. Buy a Stake in Amazon, Google or Other Firms
Putting your stimulus money toward buying shares of companies now could yield significant gains down the road.
Seriously — glance at lists of the world’s richest people and you’ll notice most of them have one thing in common: ownership of businesses.
If you don’t have millions to spend, that idea can feel out of reach.
That’s where apps like Stash come in. They allow you to access something typically reserved for the very wealthy — purchasing fractional shares of companies for as little as $1.1
That means you can invest in portions of major companies such as Amazon, Google or Apple for just a dollar. When these companies do well, your investment can too. Some firms even distribute a payout each quarter for shareholders called dividends.
Sign-up takes two minutes, and Stash awards a $5 bonus after you deposit $5 into your account. Subscription tiers begin at $1 per month2.
3. Increase Your Retirement Nest Egg
Too often we ignore retirement savings until we’re approaching our 60s. Starting earlier, however, lets compound interest work harder in your favor.
That’s why directing a portion of your stimulus to retirement accounts now is a wise move.
While you can’t deposit the stimulus check directly into a 401(k), you can boost your payroll contributions. Make sure you’re taking full advantage of any employer match!
Alternatively, open an IRA — an individual retirement account not tied to an employer. The annual contribution limit is $6,000 (or $7,000 if you’re 50 or older), so your stimulus check can easily be put to good use here.
4. Cover Bills and Potentially Save Nearly $715 a Year
There’s something strangely satisfying about paying a large bill as an adult. Allocating your stimulus funds to an annual expense — like car insurance — means you won’t have to scramble when the bill comes due.
As you handle bills, it’s worth verifying that you’re still getting the best rate on unavoidable costs such as auto insurance.
Experts recommend shopping for car insurance at least twice a year if you want the best pricing.
If it’s been longer than six months since your last quote, it’s time to look again.
Using a digital marketplace called SmartFinancial, you might find premiums as low as $22 per month — translating to more than $700 in annual savings.
It takes roughly a minute to compare multiple insurers and see the top rates side-by-side. In just one minute you could potentially save around $715 this year. That’s a nice chunk of money back in your pocket.
If you haven’t compared car insurance rates recently, see how much you could trim from your premium with a new plan.
5. Eliminate Credit Card Balances
Fact: credit card balances are the priciest kind of debt. Credit card companies profit from steep interest charges. A service named AmOne aims to help.
If your credit card debt totals $50,000 or less, AmOne can connect you with a lower-interest personal loan to consolidate and pay off all your card balances.
The upside: you’ll only have one monthly payment to manage. Personal loans typically carry lower interest rates (AmOne rates begin at 3.99% APR), so you can become debt-free more quickly. And it means no credit card bill this month.
AmOne protects your information and keeps it confidential, which may be why it holds an A+ rating with the Better Business Bureau after two decades of operation.
It takes about two minutes to check whether you qualify for up to $50,000 online. You will need to provide a valid phone number to qualify, but they won’t inundate you with calls. Once you’ve organized your credit card balances, use your stimulus payment to make a meaningful first dent toward becoming debt-free.
Before long, that credit card load — and the stress that accompanies it — could be history.
1For securities priced above $1,000, fractional-share purchases begin at $0.05.
2You’ll also incur standard fees and expenses reflected in the pricing of ETFs in your account, along with fees for various ancillary services charged by Stash and the custodian.
Savinly is a Paid Affiliate/partner of Stash. Investment advisory services are provided by Stash Investments LLC, an SEC-registered investment adviser. This information is provided for educational and informational purposes only and is not intended as investment, legal, accounting, or tax advice. Investing involves risk.
