Should You Save or Invest Your Stimulus Money? – The Motley Fool

Posted: April 19, 2020 at 2:51 pm


without comments

Many Americans will soon be receiving a coronavirus stimulus payment from the IRS. Depending on your income, you could receive up to $1,200 per adult and an additional $500 per child dependent in your household.

When you get this big, lump-sum payment, you'll have to decide what to do with it. You have three options, and the right one will depend on your existing financial situation.

Image source: Getty Images.

The stimulus check is meant to provide income for Americans who need it because coronavirus adversely affected their finances. If you've lost your job, unemployment benefits haven't started yet, and you need money to cover food or bills immediately, spending your check is the right option.

It's true that most creditors will work with you now, suspending late fees and allowing you to put loans into forbearance so you won't have to make payments. Most renters also are protected by federal or state moratoriums on eviction, and utility companies generally can't cut off power during the coronavirus crisis.

But that doesn't mean you shouldn't pay your bills if you can -- even if you need your stimulus money to do so. Interest won't stop accruing on your debt even if it's put into forbearance (except for most federal student loans), and rent and utility payments will continue to be due (the amount you owe won't just be forgiven). So, if you stop paying now, you could end up owing a lot later, which would make it harder to get back on your feet financially.

If you have the money to cover your bills but you have no liquid emergency savings, or your emergency fund is very small, the best thing to do with your check is put it in the bank.

You don't want to make your money inaccessible to you by investing in assets you can't easily get out of. And since the stock market is very volatile right now, you don't want to invest it and risk losing some of it right away in case you end up needing it.

If you have emergency savings sufficient to cover three to six months of living expenses, and you don't need your stimulus money to pay bills, investing your check is likely your smartest choice.

Investing your money now enables you to take advantage of the economic downturn to get into index funds or buy stocks of great companies at potentially discounted prices. There are some great investment buys you could take advantage of right now, even with as little as the $1,200 the stimulus money provides.

You could use the money to bulk up your retirement accounts, depositing it into your IRA and scoring tax savings. Or you could open a taxable brokerage account if you want to be able to access the funds before age 59 1/2.

Just be sure not to invest money you're likely to need in the next five years, as you want to make sure you can leave the cash invested long enough to recover from any market downturns.

Your stimulus money is meant to help improve your financial situation, and it can do that whether you use it now to avoid consumer debt or invest it to build a more secure future.

Choosing whether to save or invest your stimulus money will depend on whether you're currently in a good financial position or if you need a little extra help to shore up your finances during troubled economic times.

Originally posted here:
Should You Save or Invest Your Stimulus Money? - The Motley Fool

Related Post

Written by admin |

April 19th, 2020 at 2:51 pm

Posted in Investment