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How to make your stimulus check pay long-term dividends

If the most recent stimulus money isn’t needed immediately, consider paying down your debt or investing in your retirement, says retired investment manager Dan Vrabac.

With a third stimulus check in their pockets, Americans have a new opportunity to improve their financial position. This week, The Leaven visits with Dan Vrabac, retired investment manager and university lecturer in investments, to discuss what smart money moves readers might now consider.

Q. How should I think about spending my stimulus check?

A. If you don’t need your stimulus check for immediate food and housing expenses, consider using it to pay down your credit card fully every month. Start with the highest interest rate card first. It’s unlikely that any investment you make with your stimulus check would return more than the interest rate on a credit card of 15% to 25%.

Consider where you are in your life. Have you prioritized your goals? How close are you to meeting those goals? Match the risk level of what you invest in with how soon you will need the money. The sooner you need the money, the less risk you should take. Take into account that not all goals are financial.

Q. What do you think of using your stimulus check to pay down the principal on your mortgage?

A. It’s a good idea to pay down all debt as quickly as possible. Even in today’s low interest rate environment, where more of your mortgage payment goes to principal rather than interest, the total interest you will pay if you only make the regular monthly payments is still a substantial amount of money. Check the truth-in-lending form you received when you got your mortgage loan to see how much that interest will cost you.

Q. Surveys show that many Americans are unprepared for retirement. What measures can they take now with their stimulus check to improve their savings habits?

A. Maximizing your savings is the most important thing you can do to prepare for retirement. Many people wonder how much they will need for retirement. One study suggests that if you want to live the same lifestyle in retirement as you do before you retire, you will need to have saved 11 times the amount of your pre-retirement income. If you are younger and not yet on track to reach that goal, you can rethink how you can improve your savings. If you are older, nearing retirement and unable to meet that goal, then you may need to rethink your retirement. You still have time to contribute to an IRA to help offset 2020 taxes. That would be one way to use your stimulus check to improve your retirement savings.

Q. How can I increase my savings to meet my financial goals?

A. The importance of maximizing savings is one reason I believe it is important to pay down your debts. That doesn’t mean you have to be rigid. But it does mean you don’t have to keep up with your friends. Don’t stretch on your house payment. If the bank tells you that you can afford to pay $2,500 a month on a house, find a house where your payment is $2,000 and save the extra. Don’t buy or lease an expensive car. Buy or lease a moderately priced car. This is especially true for people in their 20s to 40s.

Q. Many Americans struggle to invest — either on their own or through their company — because they don’t know what they are doing. What do you recommend?

A. Most individuals are at a loss when it comes to knowing how to properly invest for their future. The important thing is to have a plan. You can approach this two ways — spend time learning how to do it yourself (baby steps), or find a qualified financial planner. On my website — — I provide a multistep plan on how to begin an investment program. I also provide information on how to select a financial adviser or financial planner.

Q. How important is it to have an emergency fund?  Where should I invest the fund?

A. In the aftermath of the pandemic (and the 2008 global financial crisis), people found themselves unemployed for longer than six months. If you are out of work that long, your skills suffer and it becomes difficult to get a job that pays what you were earning previously. I recommend that families have one year’s worth of income in an emergency fund. You can build it gradually. Having a sufficient emergency fund gives you some time to find the right job if you are laid off. Emergency fund money should be kept in a federally insured bank account or a short-term, high-quality bond mutual fund. The purpose of an emergency fund is not to earn a big return, but rather to have the money there when you need it.

Q. Is there anything you would suggest that investors need to think more about?

A. Risk. When people think of investing, they typically think of how much money they expect to make. Often, the best way to make money is not to lose it. That means take only those risks that fit into your overall financial plan.

Q. A third stimulus check might also give some families the chance to pay it forward — to their parish, a neighborhood food bank, even local businesses that are struggling. What would you recommend?

A. This ties into your financial and personal goals. Investment returns don’t have to be in cash. The return you receive from helping others will be enough reward. There are many ways to help others in these difficult times.

Q. Many workers have been told they will not be going back to their old workspace, at least not full time. Is it a good investment to reimagine their home workspace to accommodate their new needs?

A. If you are thinking of spending money for a home office or workspace, it is not clear how much of that investment would be tax-deductible. Check with your tax specialist. It is possible that such an investment may boost the value of your home, but that’s not certain. The real benefit from such an investment would come from how productive and comfortable you are in your new space.

Dan Vrabac is retired from a 30-year career in finance capped by several years of university teaching. His website on investing is free to all at: He and his wife Wendy are native Kansas Citians and members of St. Michael the Archangel Church in Leawood.

About the author

The Leaven

The Leaven is the official newspaper of the Archdiocese of Kansas City in Kansas.

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