In the past month, many New Mexicans have found an extra $1,200 in their accounts. Passed in March 2020, the CARES Act extended economic stimulus money to many adults in the U.S. But what should you do with it? For many New Mexicans, the answer is easy: Use it. You might need it to patch a hole in your paycheck created by fewer work hours. If you’re unemployed, you might need it to pay for necessities for your family, such as groceries, gas, or utilities. If your immediate needs are met, you might be able to be more selective about how you use your stimulus check. Spend, save, or invest? Here’s what to consider when deciding what’s best for you.
This option might sound like the most enjoyable one. Who doesn’t have a wish-list going for themselves or their households? Plus, government officials would like to see you spending and stimulating the economy. (That’s the idea behind the checks, after all.) If you’re weighing this against other responsibilities, you could set aside a portion of your check to spend — perhaps on a night of take out from a local restaurant or on something that will make your life a bit better during these difficult times.
However, financial experts advise that if you’re going to spend your stimulus money that you do so on paying down credit card debt. According to the Federal Reserve Bank of New York, in early 2020, Americans owed some $890 billion in credit card debt. If your credit card bill is part of that balance, you can take a couple of approaches to paying off that debt. Some advisors will have you set your sights on the card with the highest interest rate and pay that off first. Others recommend aiming for the one with the lowest balance. Whichever approach you take, paying down credit card debt will save you money in the long run. Every day that your debt sits unpaid, it’s costing you in interest.
Many financial advisors recommend having a rainy-day fund that covers three to six months of household expenses. However, many Americans don’t keep that much in savings. A June 2019 Bankrate study found that nearly three in ten U.S. adults have no emergency savings. One in four have a rainy-day fund; however, they don’t have enough to cover a few months’ worth of living expenses. So, you may want to consider using your stimulus money to set up or add to your fund. This money can come to the rescue in the event of future public-health crises, but it can also come in handy for situations close to home, like an illness or job loss.
If you already have a healthy amount in savings, you could set aside your money to put toward big purchases in the future, like a down payment on a car or house.
If you’re on solid financial footing, some advisors say this is the time invest, albeit carefully. If you’re looking to invest, they recommend keeping your eyes on long-term, slow-growth funds. One example of this is opening a 529 plan, in other words a college savings account, for your kids. The money you contribute grows tax-free and will be available when your child or children need it for higher education.
With all these options on the table, you may choose to divide up your check and apply a portion of the check to each. Here’s another wild card option: donate. With many New Mexicans in great need, if you have a little extra, you could pay it forward.