by: Remie Longbrake | published: March 15, 2021
Wondering how to budget your stimulus money while still satisfying your spending cravings? Here’s a variety of ways to financially prepare for the future while not starving yourself of the present.
To start budgeting your stimulus check, first, pay off any high-interest debts you currently have. These can include high-interest rate credit card bills, student loans, mortgage payments, or various other debts. Don’t worry about paying off all of your current debts right now.
Focus on high-interest payments that may cost more money in the future to pay off. Anything you pay in addition to your regular bills can help you in the future and is just a bonus right now.
Invest in an emergency fund
Investing in an emergency fund is more important than ever right now. Ensure that you have enough money to pay for any unexpected plans or bills by starting an emergency fund. To start an emergency fund is easy, and anyone can do it.
Start your emergency fund with a plan. The goal of this fund is to save up 3 to 6 months’ worth of income. This may seem daunting at first, but even putting away a small amount of money at a time can help you reach this goal.
Calculate a percentage of your paycheck that you can put away every month. This varies from person to person, but keep in mind, any amount of money you put away will help you in the future. Sometimes, starting small and building up the percentage of money that you’re putting away can help you calculate how much money you need to pay bills, get groceries, and any other needed expenditures.
Starting small decreases the likeliness of giving up on creating an emergency fund. If you try to put away too much every month and feel as if you don’t have enough money to survive, it is easy to feel like you need to give up. Remember, starting small and building up the percentage of the income you are contributing to your emergency fund is the best way to tackle this seemingly daunting task.
The second step of an emergency fund is finding a good bank that will fit your specific needs. This should be a separate account, but sometimes, even a completely separate bank is a good idea, too. This reduces the urge to take money from your emergency fund if you do not need to.
Look for banks that have high-interest savings accounts, since the bank will essentially pay you just for putting money away. This is a great way to build more money in your bank account without having to contribute more of your monthly take-home income.
Invest in Roth IRA and 401K
Starting a Roth IRA account is simple and can help provide future income for you and your family. Roth IRAs can be opened at a bank or a brokerage, but, be aware, there are some financial limits on opening one.
Many financial advisors recommend going to a brokerage to receive a more personal and hands-on experience. Make sure you qualify for an account by calling a local brokerage or bank and explaining your yearly income and how you file your taxes, for example, if you file as a married couple, or if you file separately.
Once you find out if you qualify to open a Roth IRA account, you can contribute up to $6,000 to $7,000 a year, depending on your annual income. You can invest in a variety of areas, such as stocks, mutual funds, bonds, or exchange-traded funds (ETFs).
Many employers offer a 401k program, where the company matches the amount of money that an employee contributes to their retirement fund. The contributions that employees make to their 401k program are pre-tax, meaning it is tax-exempt.
This allows more money to be contributed to their retirement fund. If the stimulus check can help temporarily pay your bills and dues, consider contributing a higher percentage of your paycheck to your 401k program, since your employer will match it!
Invest in Education Programs:
Investing in 529's
529 programs can help pay for educational programs, from K-12, also including college. This allows people who are currently working without a degree to attend college for a cheaper cost, while also allowing families to put away a monthly deposit specifically designated for the education of their children.
Citizens are allowed to invest in any 529 programs in the United States, depending on the college they are looking to apply to and what state it is in. No matter where you or your family attend college, the plan will still be applicable. If you live in Texas, create a plan in California, but attend school in New Jersey, you can still use your 529 plan.
529 plans vary from state to state but usually have the same characteristics. Researching and comparing these plans can ensure you get the best plan for your individual education goals.
This plan allows tax-free earnings to be put away into a savings account and also allows money withdrawal at any time, tax-free, as long as it is being withdrawn for educational purposes. These purposes include room and board, books, internet, and general tuition.
Monthly payments may be as low as $25, but can be raised depending on your income. Automated monthly deposits may help families organize their finances better, as well, making 529 programs easy and accessible.
These plans are typically established by parents, grandparents, or other family members, designated to help their family members receive an education at a lower cost. The person who funds the program may also be eligible for state tax reductions for their contributions to the program.
Due to the low minimum contribution rate, anyone is eligible to sign up for a 529 program, making it accessible and easy to do.
Investing in Education Savings Accounts
Education Savings Accounts or ESAs are similar to 529s but still have noticeable differences. ESA’s have a limit of $2,000 contributions, per child, per year, while 529s do not have a contribution limit.
Similar to 529s, ESAs can be used for primary, secondary, and college-level school expenses. One noticeable difference between 529s and ESA’s is that ESA’s allow your money to be invested into a variety of things, such as stocks, bonds, and mutual funds. This allows for more flexibility and control regarding your investments.
However, ESA’s are known for having more restrictions than 529 programs. The beneficiary of the ESA account must withdraw the money and use it for educational purposes before they turn 30, or it must be passed down to another family member who is seeking further education.
Also, once the beneficiary turns 18, no more money can be added to the account. ESA’s also have restrictions regarding opening an account, you must make less than $110,000 a year if you are filing your taxes alone, and less than $220,000 a year if you are filing jointly with someone else. These plans both have noticeable differences and benefits, allowing flexibility while families choose a plan that best suits their financial situation.
Investing with life insurance
Cash Value Life Insurance is a permanent form of life insurance, in comparison to a different life insurance program, such as a term or ‘pure’ life insurance policy. Every insurance policy differs, so research is crucial while finding a plan that suits your lifestyle.
Cash Value Life Insurance tends to be more expensive than other types of insurance plans, as the policyholder must pay a premium that raises in cost as they get older. There are many different policies and plans offered for life insurance, such as including whole life, variable life, universal life, and variable universal life.
Some people even get multiple types of life insurance, such as getting a Cash Value policy and a term-length policy, depending on their situation and financial needs. This allows policyholders to withdraw funds from the policy, even if the member is still alive.
However, early withdrawal can cause the death benefits to lower and can be subject to taxes.
Life insurance policies may not seem important right now, but the younger you are when you open one, the less expensive it will be. Sometimes, if you wait too long to open an account, insurance companies will not let you open one, or the monthly premium will be significantly more expensive.
Some life insurance policies have monthly dues as low as $25, it is all about finding what works for you and your financial situation!
Don't forget to have fun!
Try not to stress yourself out about spending your stimulus money now. Consider opening a vacation or gift fund! Having multiple different savings accounts can be helpful for financial planning; consider putting away a couple of dollars a week to make Christmas shopping more affordable, or just to buy something nice for yourself. Don’t starve yourself of things you love because of the price--that makes it easier to feel inclined to give up on being financially active and responsible.
Keep track of your monthly expenses to calculate how much money you could put in your savings accounts every month--and don’t forget to occasionally treat yourself!
We hope these stimulus spending suggestions help you understand your options to better your future. If we can help please let us know!