The American Rescue Plan, signed into law by President Joe Biden last week, includes a third round of stimulus payments worth up to $1,400 for individuals and up to $2,800 for married couples, plus an additional $1,400 per eligible dependent, with no cap on the number of dependents claimed.
The first wave of payments has already hit some Americans’ bank accounts, with many more direct deposits to carry the official payment date of March 17.
What you should do with your windfall depends largely on your personal financial situation, says Suze Orman, bestselling author of “The Money Class” and host of the “Women & Money” podcast. “You hear financial experts say, ‘Pay this first, then that,’” she says. “How can you tell someone to pay something if you don’t know their financial situation?”
Nevertheless, depending on your finances, Orman has a few suggestions for how, and how not, to put your stimulus to work toward your long-term financial health.
One idea that may be top of mind but should be on the bottom of your priority list, says Orman: Using your stimulus money to invest in the stock market. It isn’t smart to spend your stimulus dollars on stocks until you have other important financial safeguards in place, she says, like a well-stocked emergency fund.
Here’s how she suggests you prioritize.
Don’t invest until you’ve given yourself ‘a life raft’
If you’re thinking of plunking a portion of your stimulus money into the stock market, you’re not alone, especially if you’re young. In a recent survey from Deutsche Bank, half of respondents aged 25 to 34said they planned to spend 50% of their stimulus payments on stocks.
“If you have income coming in, now the question becomes, ‘Do you have a 12-month emergency fund?’” she says. “If you don’t have that, I would not be investing in the stock market at this point on any level.”
This is especially true for people who are using a portion of their portfolio to trade in and out of individual stocks or partial shares (or slices) of those stocks. “If you buy stocks or slices in a taxable account, maybe it turns out you want to sell them in less than a year,” she says. “If they’ve gone up, now you’re subject to regular income tax.”
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