Ok, so you’ve probably just received your stimulus payment and acknowledge that there are a ton of things you could do with that money right now.
But, before you blow through your money, consider the following 10 worst ways to spend your stimulus check.
10. Going on a Shopping Spree
Is that stimulus check burning a hole in your pocket? If so, then you need to fight the urge to splurge on that new TV or that new wardrobe you were planning on buying and set some of that money aside instead, even if you don’t need it at the moment. The best way to do this is by putting it in a high-yield savings account where it can earn interest and grow.
Another option is to use your stimulus money to create an emergency fund to dip into when you need it. Of course, depending on how much your stimulus check is, you might need to add a little more of your own cash to that emergency fund. That’s because financial experts recommend setting aside enough money to cover at least six months of your living expenses.
Yes, there’s the possibility that you could make even more money heading to the slot machines or the lotto line with your stimulus cash in hand. But there’s also the possibility that you could lose it all in one fell swoop. That’s because when it comes to gambling, the odds are against you.
According to Powerball.com, your chances of winning the Grand Prize, a.k.a. the Jackpot, are one in 292,201,338. You’d be better off investing that money, say in savings bonds, or perhaps even in a savings account where you know that the least amount of money you’ll walk away with is the amount of money you started with.
8. Paying off Your Debt
While some financial advisors suggest using your stimulus money to pay off high-interest debt, others suggest putting that money aside for the time being or putting it toward other expenses, such as groceries.
Why? Well, many creditors are being flexible and are giving borrowers a break on their debts due to the coronavirus pandemic.
For example, some banks and mortgage lenders have been reducing borrowers’ monthly payments or allowing them to defer their payments without any late fees getting tacked on.
Meanwhile, people with federal student loans have seen their interest cut to 0%, while others have been allowed to skip payments altogether.
7. Planning for Your Immediate Needs Only
We know there are a lot of things you can do with your stimulus money right now, but you need to plan for the future as well. That being said, why not consider putting all or some of your check into a retirement fund? Not only will your money be tucked away for the future, but you’ll be able to earn huge dividends on it, too, for future use.
According to an article published by AARP, there are two main types of individual retirement accounts (IRAs): traditional and Roth.
“With traditional IRAs, your contributions may be tax deductible and you defer paying taxes until you withdraw the money in retirement. Roth IRA contributions are not tax deductible, and you pay taxes on the money upfront,” the article reads.
6. Investing It All in the Stock Market
While it may be a good idea to invest some of your stimulus check in the stock market, you should avoid the temptation to put ALL of it into the stock market.
Instead, Benzinga.com recommends diversifying your investment “as much as possible to limit risk.”
TIP: Don’t try to “time the market” either. Just because a stock price has dropped doesn’t mean it will rebound soon. In fact, it might plunge even further, especially during these uncertain times. Trying to time the market during a pandemic will end up costing you for sure.
5. Spending It at Chain Stores
There’s nothing wrong with shopping at chain stores. But it’s the little guys who are suffering the most during this pandemic. That’s why MoneyWise.com recommends doing a lot of your shopping at local businesses instead.
Yes, “you may save a few bucks at a chain, but failing to support your local economy at this critical time could have long-term consequences,” MoneyWise.com said on its website.”If you want shops and restaurants in your area to survive the lockdown, you need to make an effort to support them as much as possible.”
4. Stocking up on Pointless Supplies
It’s one thing to stock up on nonperishable foods, medications and cleaning solutions, but it’s another thing entirely to blow your stimulus money on things you don’t really need, such as bottled water, for example. Remember when everyone started buying all the bottled water and toilet paper in the stores?
It is understandable why people were stocking up on toilet paper because it is essential to have on hand. But there is really no point in buying bottled water when most of us have tap water that was completely safe to drink. Unless your water supply was tainted, it is a waste of money and is harmful to the environment.
3. Traveling the World
Sure, it would be nice to visit other countries, but let’s be real about it — now is not the time for embarking on travel adventures, especially since we’re in the middle of a pandemic. Not only that, but many places have banned U.S. citizens from even entering their country until the coronavirus is over.
That being said, if you’re really serious about traveling the world, take that stimulus check and put it aside until after the pandemic is over, and you can do all the traveling your little heart desires.
2. Not Investing in a 529 College Savings Plan
Now is as good a time as any to start investing in your child’s college education. And, according to Kiplinger.com, your contributions will grow tax-free. Plus, these plans typically have very low premiums.
Additionally, you might receive a tax deduction or credit from your state if you invest in your own state’s college savings plan.
TIP: You don’t have to invest the whole stimulus check into a 529 savings plan. Just a portion of it will do. You can take the rest and use it for other expenses.
1. Buying a New Car
Did you know that a car depreciates in value as soon as you drive it off the lot? Yep, it’s true. So, while it might seem like a good idea to use your $600+ stimulus check as part of a down payment for a new car, it actually isn’t.
According to an article published by Benzinga.com, your new car will likely lose way more in value than what you put down for the down payment.
TIP: If you really need to purchase another car, opt for a gently used model instead.