Should You Save or Invest Your Stimulus Check? (2024)

FAQs

Should You Save or Invest Your Stimulus Check? ›

Save and invest towards your goals

One popular budgeting method, the 50/30/20 budget, recommends setting aside a total of 20% of your paycheck for your savings goals, including the magnum opus: retirement. Experts say that's a fair rule of thumb.

The biggest difference between saving and investing is the level of risk taken. Saving typically results in you earning a lower return but with virtually no risk. In contrast, investing allows you the opportunity to earn a higher return, but you take on the risk of loss in order to do so.

The simple rule: If you need the money in the next three years, then save it ideally in a high-yield savings account or CD. If your goal is further out, or you don't have a specific need for the money, then start thinking about investing in something that will grow more, like stocks or bonds.

But when it comes to what they need to be saving, it depends. So, if we're starting with a 30-year-old, they should be probably saving close to $580, $600, at least, a month. And that's if they're going to earn a high rate of return. So it depends on how aggressive and risky that they're looking to be.

How much of a $1,000 paycheck should I save? Under the 50/30/20 rule, a person with $1,000 of take-home pay should put about $200 toward savings. This can include saving for short-term goals and retirement.

Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.

Saving provides a safety net and a way to achieve short-term goals, while investing has the potential for higher long-term returns and can help achieve long-term financial goals. However, investing also comes with the risk of losing money.

To determine which investment is best for you, pinpoint your time horizon, risk tolerance, and liquidity needs. Cash equivalents are usually best for short- and medium-term financial goals, while bonds and stocks are better for medium- and long-term ones.

When should you invest instead of save? ›

Investing could be the choice for you if you already have an emergency fund and if you are planning for a long-term financial goal, if you're seeking compounding interest on your funds, if you have the flexibility to hold your funds in a less accessible account, or if you have a higher risk tolerance.

When planned savings is more than planned investment, then the planned inventory would fall below the desired level. To bring back the Inventory at the desired level, the producers expand the output. More output means more income.

How much is too much? The general rule is to have three to six months' worth of living expenses (rent, utilities, food, car payments, etc.)

One tradeoff of issuing stimulus checks is the possibility of rising inflation. If all households immediately spend a large portion of their stimulus checks, the supply of goods and services in the economy may not be able to keep up with consumer demand.

Many individuals saw the money from the stimulus check as replacement of this lost income, and thus, used it to pay for expenses, such as food, that would typically be bought using their regular income.

You Can Still Claim $1,400 Stimulus Checks and 2021 Child Tax Credits. The IRS says that stimulus payments and 2021 child tax credits are still available for eligible individuals who haven't received them. When you purchase through links on our site, we may earn an affiliate commission. Here's how it works.

Emphasis on savings goals: By allocating 20% of your income to savings, you can set up an emergency fund, prepare for retirement, pay off debt, invest, or pursue other financial goals.

This goes back to a popular budgeting rule that's referred to as the 50-30-20 strategy, which means you allocate 50% of your paycheck toward the things you need, 30% toward the things you want and 20% toward savings and investments.

The short answer to what happens if you invest $500 a month is that you'll almost certainly build wealth over time. In fact, if you keep investing that $500 every month for 40 years, you could become a millionaire.

The 75/15/10 rule suggests devoting 75% of your income to living expenses, 15% to investing, and 10% to savings. This guideline can be a flexible way to prioritize your long-term financial future when deciding how to budget and allocate your income, which you can adapt based on your situation.