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Now that tax refund and stimulus checks have been sent out and cashed, what will you do with the money? Maybe you feel like you’ve got cash burning a hole in your pocket, but it’s important to take a step back and consider your options before making any decisions about what to do with it.
The Federal Reserve Bank of New York reported that people were spending just over 29% of their stimulus checks in June of 2020, 25.5% in January, and under 25% in March, while the percentage they saved went up each time: from 36.4% to just over 37% to 41.6%. At the same time, the amount they used to pay down debt fluctuated, staying at slightly over one-third.
As these figures show, you have a number of options, and you might want to consider doing a financial needs analysis to help gain focus. How you proceed should depend on your financial situation and personal priorities.
Pay down your debt load
If you’ve got a lot of debt, this is one of the best things you can do to save yourself money. The more you can pay off, the less interest will accumulate and the more you’ll save yourself in the future. This is especially true if you’re dealing with high-interest loans. It’s a good idea to pay those off first.
One reason it can be hard to get out from under debt is that you wind up paying compound interest: interest not just on the original loan, but on the unpaid interest that’s accumulating. If you make only minimum payments every month, you’ll wind up paying a lot more over time than you will if you pay larger sums.
This is one reason that, when you get a big lump sum like a stimulus payment, paying down debt is a good option. Another reason is that lowering your debt is one way to help you build credit.
What may not be such a good idea is doing the opposite: Treating it like regular income and incorporating it into your budget — when it won’t be there after it’s used up. Reserve your regular budget for regular income so you don’t face a rude awakening when your lump sum runs out and you’re overextended.
Get current on your bills
The economic uncertainty of the past year may have put you behind on your bills. If so, use your stimulus check to get caught up. It’s especially important to do so because late payments can harm your credit, especially if they’re more than 30 days out. That’s when past-due payments get added to your credit report, which can affect your ability to take out loans and raise your interest rates.
Put money into savings
One thing the pandemic taught us is that it’s a good idea to keep some money in reserve for a rainy day. Many of us faced furloughs, layoffs, and reduced hours. Conventional wisdom says it’s a good idea to save whatever it will take to cover six months’ worth of expenses, but some economists now advise it should be a year, given the magnitude of recent events.
Others, meanwhile, say you should shoot for a specific figure. If you’ve got around $2,500 saved, you should be able to get by without facing the kind of financial hardship caused by not being able to pay rent, utility bills, etc.
Make repairs and upgrades
If you have repair projects that aren’t urgent but that need to be taken care of before they become bigger problems, the stimulus can give you some money to do that. Whether it’s patching your roof, putting in a sturdier banister or wheelchair lift on the stairs, or installing a bath or shower grab bar, you can use your windfall to bolster your safety and security.
Invest in your fitness
One thing we couldn’t do during the pandemic was go to the gym. This might be especially frustrating if your gym has equipment and courses specifically tailored to people with disabilities.
But instead of paying for a membership, consider using your stimulus or tax refund to buy your own exercise equipment to keep yourself healthy and fit. It could be a weight set, a bike (mobile or stationary), a basketball hoop for your driveway, or something else you’ll enjoy that will help you stay healthy. Sportaid has many pieces of exercise equipment designed for people with disabilities.
Make your ride safer
Your vehicle’s another place you can invest. Have the brakes checked to be sure your pads aren’t overworn, and do the same thing with your tires: check for worn tread and bulging sidewalls, and replace them if the time has come. Have your wiper blades replaced before winter comes, too.
While you’re at it, be sure you’re safe once you get out on the road by investing in a car emergency kit that includes things like a flashlight, set of wrenches, wire cutters, a jack, and jumper cables. Consider roadside assistance for anything you aren’t able or don’t want to do yourself.
Make some investments
Instead of paying interest, what about making some interest yourself? If you don’t need the stimulus check or tax refund to pay down debt or pay bills, look into some smart investments. Add some money to your retirement account or consult with your financial advisor to determine the best way to use your windfall.
Donate to charity
If you’ve got everything covered for yourself, think about giving some of your money to a reputable charity. Identify a cause you care about. Consumer Reports has a list of charities you can feel comfortable supporting and those you might be better off avoiding.
There’s no shortage of ways you can use your stimulus check or tax refund. Investigate your options, learn what’s best for your situation and what best reflects your goals.
It doesn’t have to be just one thing, either: You can use your money for a combination of the above or other alternatives you identify. By taking the time to sort things through, you’ll make the best choice possible in the end.
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