With the passage of the third round of stimulus checks, Americans everywhere are slowly getting their government payments. Additionally, many Americans are also receiving tax refund cash, meaning that the average family has a little more spending money in their pockets right now than they usually would.
So, what should you do with that stimulus money? The better question might be what not to do to avoid putting yourself and your family into a bad situation down the road. Here are a few things to avoid when budgeting that extra money:
Avoid Recurring ExpensesIt happens every tax season when middle-class and cash-strapped Americans receive their refunds. You see stores crowded with families purchasing big-ticket items, from practical things like refrigerators and washing machines to frivolous fun like game systems and television sets.
It’s almost a holiday in many American stores, with decorations hung from the ceilings and walls boasting the most mileage for your tax return dollar. The problem is, when you receive a single, lump sum of money, these big purchases add up quickly. It stands to reason that if you need something like a refrigerator or a dryer, you should wait until you can purchase it outright instead of putting it on a payment plan with interest. But just because you can afford extras like new televisions and gaming devices doesn’t mean that you actually need those items – no matter how much your children insist that they do!
Speaking of payment plans, that is where the real financial pitfall lies. Retailers realize that the extra money in your pocket is making you a little less prudent with your purchases, so they will do their best to ply you into buying things that are even beyond your current spending power. Just put it on a payment plan, they’ll tell you – you can take home something worth ten times the amount in your bank account today!
However, the money in that bank account won’t always be so abundant. The country and the world at large are still recovering from a once-in-a-lifetime pandemic that has negatively impacted markets everywhere. Even if you have the money now to make those payments, you might not a few months from now. Then, you may face repossession of the item, alongside hefty fees and even legal trouble. If this doesn’t sound like a good idea to you, save your stimulus cash for things you can buy outright – or don’t shop at all.
Don’t Invest Unless You Already Have Savings
Another way that many people are considering spending their stimulus money is in the stock market or via other investments. It’s true that coming into a sum of money this way is the only way that many Americans foresee themselves being able to invest; especially during this trying time, many just haven’t had the expendable income beyond paying bills and buying necessities to invest in anything. However, putting all of your money into the markets may not be the best idea if you don’t have any savings.
As the last year has taught us, having no savings can leave your family vulnerable to unforeseen financial downturns. All it takes is a few bad months or even weeks, and you could be facing eviction or foreclosure. Without savings, many American families have lost homes, vehicles and gone without basic necessities during a trying time.
Don’t let this happen to you. If you don’t have money in savings, put your funds there first. While investments can improve your situation over time, there is always the possibility that they won’t. The markets – especially during this recovery period – are tumultuous at times. Putting your money in savings is a guaranteed way to keep something “for a rainy day”, and you just never know when it might start to rain again!
Don’t Rush to Pay Down Debt
Wait, what? Shouldn’t the first thing you do when you come into a large sum of money at one time be to prioritize the repayment of debt? Won’t that help you recover from past financial failures and rebuild credit in the long term?
While repaying debt is an important part of the process to rebuild your financial future, you may have other options – especially right now. Because of the pandemic and the extenuating financial circumstances that it has created, many creditors are offering greater flexibility to debtors. They are allowing for more flexible payment plans, forgiving portions of debt, and negotiating payment strategies that benefit the debtor more than ever before.
As such, it is a good idea to check out some of these options before you hand over all of your stimulus money. You may choose to repay debt during this time, but find out if a portion of that debt might be forgivable or negotiable before you do so. That way, you save the maximum amount, all while making responsible financial decisions that will help you enjoy a better life in the years to come!
So, What Should You Spend Your Stimulus Money On?
Now that we’ve gone over all the ways you shouldn’t spend your stimulus money, how should you? It’s easy to make lists of what to avoid, but most Americans think in terms of action. They want to know what they should do with their money to create the best possible impact on their financial future.
Some solid suggestions from industry insiders include:
- Paying down your highest-interest debts. This will prevent that interest from piling up. Just remember to talk to your creditor about potential forgiveness first!
- Beef up your emergency fund. You’ll be glad to have that money when your family truly needs it!
- Shop local. If you’re going to spend your money, invest it wisely by shopping with small, local businesses that might be negatively impacted by the current economic situation. This will help ensure that these businesses stay open – and you’ll feel good about your spending.
For more information about using your stimulus money the smart way – and help for those who are too far behind to use a one-time check to get right – contact Van Horn Law Group. In these troubling times, it pays to have smart legal advice regarding bankruptcy, foreclosure, and rebuilding your credit and your financial health the right way!