Screen Shot 2020-05-13 at 7.57.41 AMHi girl gang! I’m a little late to the party but I hope you haven’t spent all your stimulus money yet. Or I may just be really early to the party because word on the street is that we will be receiving another stimulus check  in the near future. The house democrats just shared a plan to send another round stimulus and $3 trillion bill inclusive of $1,200 checks for every American. Either way, I have some tips if that $1,200 is burning a hole in your pocket. But first…a PSA…

Pay Your Bills

This may seem obvious but before you consider spending you stimulus money on anything else make sure all of your bills are in good standing. If your income is uncertain due to unemployment or the coronavirus throwing your steady income for a loop you may want to consider paying some bills in advanced.

A good example of some bills to get ahead of would be your rent, car payments, or cell phone bill being that these are essential expenses.

If you find yourself in a tough financial situation – you are not alone! Please don’t hesitate to reach out to directly to the company and see if they are able to defer payment, reduce your interest rate, waive late payment fees, anything! It never hurts to ask 🙂

Ok now without further ado, let’s get right into the 5 ways you should spend your stimulus check.

1. High Interest Debt

If you have high interest debt you have a problem. A serious problem. This is because minimum payments are sexy and can seduce you into ultimately paying up to 100% more than what you originally owe.

High interest debt is any outstanding balance that accrues 7% or more in interest on a monthly basis. The most common culprit? Credit cards.

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But hey! Luckily you have some extra cash to throw at your debt. I would start with whatever credit card or debt that has the highest interest rate and make the largest payment towards that account.

Don’t forget to call your credit card company and see if they can reduce your interest rate! Now we don’t want to spend all that stimulus money in one place – we gotta pay our selves first…

2. Emergency Saving Account aka Bad Bitch Account 

This is the second bucket you should be dumping that sweet sweet stimulus money into. Why? Because whenever you get paid you have to pay yourself first girl! I cannot tell you how many times my emergency fund has saved my ass over the years i.e. it gave me the freedom to leave a toxic work environment and search for a new job at my leisure.

Now there’s a science behind exactly how much you should have minimum in your emergency savings account, and if you’re not paying off any high interest debt I’d suggest you dive into exactly how much you need to be saving in your emergency account. 

But if you’re paying off high interest debt I would recommend having at least 1 month of bare living expenses in the bank first and then spending any surplus money on the high interest debt.

This is because your savings account at best only earns 1.6% APY (or interest) while your high interest debt is costing you some where between 19.99 – 27% in interest a month. The math is simple, it’s more efficient to pay off high interest debt than it is to save the money in a high interest savings account.

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3. Student loans (or low interest) debt

If you don’t have any high interest debt and you have a fully funded emergency savings account (or you’re comfortable with the amount you have saved). The next way to spend your stimulus check is to pay off your low interest (think car loans!) or student loan debt.

There’s an amazing opportunity right now due to the Coronavirus when it comes to student loan repayment. Due to the pandemic that government has suspended all student loan payments and stopped interest.

You can read more about how the federal government’s coronavirus student loan policy on Forbes or StudentAid.gov

This means if you don’t have any accrued interest on your student loans 100% of your payments will be going towards your principle. This can save you SO MUCH MONEY in the long run! Don’t get it? Let’s break it down with my personal example:

My student loan balance upon graduation was $38,057. I let my interest capitalized and didn’t make any payments my first year after college so my interest capitalized and balance increased to $39,807.24. Now every month I accrue interest on my loans of $165.

This means if I pay NOTHING my balance will increase by $165 a month due to interest.

I didn’t know this in 2017-2019 so I was making $50, $100, and $200 payments when I could on top of my minimum $65/month payment.

In 2019, I paid $2,130.70 on my student loans but only $81.32 was applied to the $39,807.24 principle. The rest of my payments went towards the $165/month interest I had been accruing for over 2 years.

This is because every time I paid $100/month my student loans increased by $65/month (with my $100 payment only going towards the interest). Or worse, whenever I only made the $65/month required minimum payment my loan balance was increasing by $100/month. I was in the red and didn’t even know it! 

Now with interested paused I can focus on paying down the principle which in turn will decrease my monthly interest rate. For example, if I was able to pay off my loans to $10,000 remaining balance my monthly accrued interest would be lowered to $41.25/month.

That would mean every time I paid $100/month I would be paying $58.75 towards the principal balance (with $41.25 being paid in interest).

Please don’t get caught up in the interest trap like I did! Learn from this and use some of that sweet stimulus money to your advantage.

4. Invest in your 401(k), IRA, or Investment Accounts

Ok you may be one of the lucky ones with no high interest debt, a fully funded emergency account, no car or student loans and you know what? I’m so proud of you! Whether you inherited generational wealth or you busted your ass to get financially fit you go Glenn Coco!

You could very well take some of that sweet stimulus money and invest it in the market. Now I know it can be a little scary because we’re in the midst of a recession but you got to look at it this way – all the stocks are on sale! So whether you have a 401(K), a IRA, or an investment account make sure you stash away so cash so it can double once the market returns.

If you have no idea what a 401(k) is you can read all about them here. 

5. Treat yourself!

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Now regardless if you have all of the above or not I highly recommend taking 10% of that stimulus money and treating yourself! Whether it’s a cute new pair of shoes or stashing it away for a ~future~ vacation or as simple as buying yourself a bottle of wine, a new book, and a pint of ice cream – you deserve it girl!

Being financially fit can be exhausting and it’s SO easy for us to overspend and splurge when we don’t take the time to give ourselves a little rewards now and then.

Now the decision is up to you!

I am a strong believer of whatever financial decision you make for you – is the best financial decision! Whether you  allocate 50% to high interest debt, 20% to savings, 10% to investing, and 10% as a treat for yourself that’s great! If you go for investing 100% that’s wonderful. The choice is yours girl!

If you have any questions feel free to reach out in a comment below or slide into my dms on instagram. Until next time baddies xoxo

 

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Thank you for reading! Make sure you follow this blog so you never miss a post. You can also join the girl gang on Instagram @HighBlackGirl and Youtube @Nnekaxoxo
Posted by:High Black Girl

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