How to Make the Most of Your Next Stimulus Check
Perhaps day trading isn’t the best use of those funds
A new COVID-19 relief bill is making its way through Congress and, if recent history is any guide, quite a few of the soon-to-arrive federal checks will go toward day trading stocks.
In a survey by Benzinga of 1,000 investors and traders, nearly 30% said they’d put at least a portion of their previous stimulus money into the markets. Certainly all the time many people have on their hands amid the pandemic, in addition to fewer entertainment options, contributed to the mania around GameStop stock, AMC Entertainment and other investments that went violently up and down.
We’re all free to make choices for how we allocate money, including federal assistance, of course, but it’s worth considering how to make the most of your next stimulus payment. It could be $1,400 per person.
Stuff the emergency fund. Consider yourself lucky if your household didn’t suffer a job loss or slashed hours due to the pandemic recession. And then calculate exactly how many months of living expenses would you have been able to handle if you had been laid off? Perhaps that’s all the motivation you need to add to your emergency stash.
Paying off credit card debt is like getting a 16%+ return. As plenty have learned recently, day trading in a headline stock is a risky endeavor. But if you’re really motivated to make money, paying off a credit card balance is an insanely smart guaranteed win. The average interest rate charged these days is around 16%. It likely doesn’t deliver the endorphin rush of day trading, but a 16% guaranteed instant payoff is likely a heck of a lot more profitable.
Hatch a plan with a pro. If you’re juggling a long list of competing financial goals — who isn’t? — you might consider leveraging your stimulus by using it to hire a certified financial planner to create a detailed long-term financial plan that addresses all your major goals (building assets) and stress points (right-sizing borrowing and spending).
Plenty of pros will take on a “project” like this, for a set fee; you aren’t obligated to settle into a long-term relationship. A recent industry survey reports that the median cost for a full-blown plan by a CFP is $2,500. You want a fee-only planner who acts as a fiduciary, meaning they put your interests first.
If you don’t need a stimulus check, maybe share some? Got any family or friends experiencing financial trouble? Hearteningly, Americans who can afford to give seem to have upped their game in 2020. Fidelity Charitable, the largest national donor-advised fund (DAF), says donations made by individuals from their Fidelity DAFs increased 24%, to $9 billion. The need hasn’t dissipated.
The Census Bureau reported that after the first round of stimulus payments, households with incomes below $50,000 used at least 80% of their payment to cover household expenses. That dropped to around 70% for households with income between $50,000 and $100,00, and 63% of households with income between $100,000 and $150,000.