Personal Finance

How financial experts say this millennial should spend her $1,200 stimulus check

Key Points
  • I woke up one morning last week to find that the IRS had sent me $1,200 by direct deposit. "My bank account is happy!" I texted my friend.
  • But then I realized I had some important decisions to make. Was I going to tackle my debt? Get ahead on my retirement savings? 
  • I spoke with financial experts about the best ways to use this rare cash injection. 
Ziga Plahutar

I woke up one morning last week to find that the IRS had sent me $1,200 by direct deposit. "My bank account is happy!" I texted my friend.

Millions of Americans have had or will soon have that same experience, thanks to the historic $2 trillion stimulus package Congress passed in late March to resuscitate an economy ailing from the coronavirus pandemic.

For many people, they'll have to decide how to best allocate that cash among their essential bills to keep their families afloat during a time in which they find themselves with less or no income.

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Yet for those who are fortunate enough not to have suffered a change in their employment — at least not yet — there are still important decisions to make, I found.

After weeks of being stuck inside, part of me wanted to go on an online shopping spree to distract myself from the infinite apocalyptic headlines and the sadness I feel from not hugging my mother in months.

And since cooking has become my chosen outlet during these days of isolation and monotony, I found myself scrolling through pricey indoor grills and fancy serving platters. (Never mind the lack of people I have to serve at the moment.)

Annie Nova
Annie Nova | CNBC

Then my editor suggested a story idea: Why don't I consult financial experts about the smartest ways to put that $1,200 to use? 

Like many people in their mid-20s today, I have a heap of student loan debt, a balance on my credit card and fears about being able to fulfill personal goals, like buying a home or starting a family. 

Of course, $1,200 wasn't going to cure any of these problems, but it could make a dent and help me understand how to best prioritize them. And so, I resisted the urge to blow the rare cash injection and got some advice from experts.

Here's what they recommended. 

Time to save

"I'd love to see you put your stimulus check towards emergency savings," certified financial planner Sophia Bera, founder and CEO of Gen Y Planning in Austin, Texas, told me. 

Bera also recommended that I take advantage of the fact that federal student loan borrowers have been given a six-month break from their bills during the public health crisis to redirect my usual loan payments to a savings account until I have at least three months' worth of expenses stored away. 

Kelly Lannan, vice president of young investors at Fidelity, agreed that I should prioritize my emergency savings over retirement savings with my stimulus check, since I'm already directing a healthy amount from my paychecks to my 401(k) plan at CNBC. 

Paying down high-interest debt is a guaranteed way to improve your net worth.
Karen Wallace
director of investor education at Morningstar

After all, lots of unwelcome surprises can come up in recessions. "Consider depositing some of the money into a checking or savings account that you can access immediately if and when you need it," Lannan added. 

Still, I shouldn't slow down my retirement contributions, cautioned Alicia H. Munnell, director of the Center for Retirement Research at Boston College.

"Markets do not like uncertainty, and the pandemic has created a lot of uncertainty – tanking the stock market," Munnell said. "But you are young and can ignore fluctuations since you have decades for the market to recover before you retire." 

In the end, I put $700 of the $1,200 into my savings account.

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Tackle debt, too 

I should also use some of the money to clear up my credit card balance, the experts told me. 

"Paying down high-interest debt is a guaranteed way to improve your net worth," said Karen Wallace, director of investor education at Morningstar. 

Bera said I should start by automating my payments so that I continue to make progress grinding down that balance. "If you owe $3,000 and have 10 months left, pay $300 per month," she said. 

I turned on these recurring payments, with the first $400 coming from my stimulus check. 

Treating myself? 

In this downturn, it's not smart to make impulse purchases, but it does make sense to invest in some self-care items "that are going to help you emerge stronger from this pandemic," Bera said. 

"Why do you need a new dress if you're barely leaving your apartment right now?" Bera said. "I think it's a time to invest in things like therapy, a new journal or an audiobook." 

During these uncertain times, my self-care has involved following a different dinner recipe each night. And so I used my remaining $100 on a few new cookbooks and the ingredients I needed for steak au poivre. I hope to make it again soon for family and friends.