When Is It OK to Splurge With Your Stimulus Check?

Should you use your stimulus check to enjoy life after a hard year?

Most Americans have already received or will soon see $1,400 in stimulus funds deposited directly into their bank accounts or sent in the mail. This money stems from the American Rescue Plan Act, which was signed into law in March and was designed to provide some financial relief during the pandemic.

When you get your stimulus check, it's generally a good idea to do something responsible with it, such as saving for emergencies or paying down debt. But when you get such a large sum -- especially after the tough year we've all had -- it can be tempting to splurge and do something you enjoy.

If you're considering spending the money on a vacation, big purchase, or other extravagance rather than using it to improve your long-term financial outlook, be sure to consider your decision carefully so you don't end up with regrets.

When is splurging with your stimulus check OK?

The desire to spend your stimulus money to enjoy life is understandable after a year of lockdowns and stress. But before you spend your cash, be sure to ask yourself these questions.

Are you current on your bills?

If you're behind on rent, mortgage payments, credit cards, utilities, or any other bills, you should use your stimulus money to get current on those debts. Otherwise, you could be at risk of serious financial consequences including late fees, damaged credit, foreclosure, or eviction. It's not worth splurging only to deal with lots of financial trouble later.

Do you have an emergency fund?

An emergency fund is crucial to protect against financial disaster. It's a good idea to keep three to six months' worth of living expenses in a savings account for this purpose. Without a fully funded emergency account, any minor expense could lead you into debt and create unnecessary financial stress. So you could easily come to regret splurging when you could have saved your stimulus money for a time when you really need it.

Do you have a lot of debt?

If you owe money on credit cards or have other high-interest debt, you're better off paying that down with your stimulus funds rather than spending the money on something else. Doing so can free up more cash later that you can use to enjoy life and accomplish other goals. If you splurge while you still owe, you'll end up paying a lot more interest than necessary. And you'll have those financial obligations longer than you would have if you'd used the stimulus money for debt payoff instead.

Have you maxed out your employer match?

If your employer matches your contributions to a 401(k) retirement plan, check if you've maxed out that option. If not, you could use your stimulus money to cover other expenses in your life so you can redirect more of your paycheck to your retirement funds. Otherwise, you're giving up free money.

If you aren't behind on any bills, already have money saved for a rainy day, and aren't drowning in high-interest debt, then a splurge may be justified.

Of course, investing for long-term goals would technically still be the smarter financial move. But there's nothing wrong with using at least some of this money to celebrate making it through the pandemic and a hopeful future return to a normal life.