How will you spend your household's new stimulus check?
Sarah Tew/CNETFriday was the last day the IRS had to send out a second stimulus check, and the agency says it already delivered more than 100 million checks. Those who didn't receive their $600 can claim a rebate credit on their taxes this year. The payment was part of a $900 billion COVID-19 relief package passed by Congress in December.
The stimulus checks are arriving nine months after the passage of the CARES Act last March, which included a $1,200 check. President-elect Biden announced his stimulus plan Thursday, which would include a third check for $1,400 as well as more money for unemployment benefits, a longer eviction moratorium and expanding the Child Tax Credit.
The second stimulus checks began hitting bank accounts on Dec. 31 and will continue in the coming weeks and months as part of the Recovery Rebate Credit as part of your taxes. We're not sure when a third stimulus check could be approved as part of the next stimulus package, but we do know that Biden wants to act fast (PDF). Whether you received your stimulus check or are still waiting, here are six ways to make the best use of your money.
Pay for your most urgent needs first
Above all else, make sure your immediate needs are met. This includes food, monthly bills, and rent or mortgage. But before you prioritize rent over, say, food, consider that many jurisdictions, utility companies and even banks are offering relief due to the pandemic. See which programs you can take advantage of, then allocate funds accordingly. For example, a federal eviction ban until Jan. 31 is expected to be extended under President-elect Joe Biden.
Use it to pay your 2020 taxes
It's January 2021, and it's unlikely the IRS will postpone tax filings like it did last year. This means taxes will be due in four months. Stimulus checks will not be taxed according to the IRS, but unemployment benefits will be taxed. If you don't need to immediately use the $600, keeping it around to help pay your taxes would be ideal.
Watch this: Second stimulus checks: Everything you need to know
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Pay down your credit card debt and loans
One way to secure your financial future is to reduce your debt. A significant payment made to pay down a credit card and loan will help reduce the amount of interest paid on an account carrying a balance. The less interest you have to pay, the more funds you'll have available in the future. But before you do that, check with the debt holders, because some are offering relief, including deferred payments and waived interest. Just be sure to read the fine print, as some of the assistance offered could delay interest rather than forgive it.
Start or add to an emergency fund for yourself or your family
It can't be stressed enough how important it is to have an emergency fund. As this pandemic shows, the world can change very quickly. The fund should be equal to the amount of money spent on expenses for three to six months. While the $600 stimulus check won't cover that entire amount, it can be used as a starting point. If you exhausted or spent some of your emergency funds, this second stimulus check can help get you back on track. A simple savings account can be used to keep the money safe.
Donate to people in greater need
Those fortunate enough to find themselves not needing any of the $600 for themselves should consider giving it to people who do. There are many charities still fighting the pandemic, such as food banks and hospitals. Another consideration is to help out friends and family members who've been hit hard by the pandemic.
Open a long-term investment account for your children
Part of the relief package provides an additional $600 per child. If your family is already comfortable, there's a way to make use of that money to help your kids' future.
"Provided you don't need this money, consider opening a 529 plan for your child," said certified financial planner Marguerita Cheng. "Your state may offer a tax benefit. This money can grow tax-free. If appropriate, you can even contribute modest amounts of, say, $50 to $100 regularly."
To start a 529 plan, contact your bank or investment firm to see what they have available and what benefits will come your way if you open one up.
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