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Make the Most of Your Stimulus Check
The economic impact payments promised to qualifying Americans as part of a coronavirus relief package will be a blessing for many and a debt saver for others. However, while direct deposits started to hit household bank accounts mid-April, many are still waiting for their stimulus money to arrive.
With unemployment at an all-time high, the $1,200 stimulus payment for each adult in a qualifying household and $500 for each dependent child is no small matter. While the payment amount will vary depending on certain requirements — including a household’s adjusted gross income — the funds will be a temporary solution for folks struggling to pay rent and cover basic essentials.
Whether you have already received your economic stimulus payment and aren’t sure how to spend (or save) it or you are still waiting for a paper check to arrive, you may want to strategize a plan for your money. The following four suggestions will provide options to help you put your money to good use in the short term so you can better fulfill your long-term personal finance needs.
No. 1: Cover your essentials
Like riding an airplane, when the flight attendants tell you to secure your own oxygen mask before helping others, it’s important to prioritize how your money can help your family most. Do you have unpaid bills? A need for more groceries? Take care of essential living expenses and determine your needs versus your wants before spending your stimulus check erroneously.
It’s no surprise that using the extra funds for essentials is paramount for most check recipients. Bankrate recently released data about the stimulus checks, and more than half of respondents reported the $1,200 won’t last them the month. More than 50% said they were more likely to use the check for monthly bills and 41% said they were more likely to use it for food and essentials compared to other expenditure areas.
If you are in need of extra assistance, consider turning to local resources, such as food banks or government agencies, for help. This article provides several suggestions for managing finances during this tricky time, including trying to secure unemployment benefits, ensuring you file for any tax refunds, and calling your lenders to see if they can offer flexible payment options.
Option No. 2: Prep for the uncertain future
There is a good chance the financial effects of COVID-19 will be around for some time. So, if possible, it’s a good idea to set aside at least some of your stimulus check (if not all of it) to kick-start a savings account or add to an emergency fund. With unemployment on the rise, having a fund to dip into is a good plan.
Nick Loper, entrepreneur and the face of Side Hustle Nation, agrees that boosting an emergency fund is a great idea in this unprecedented time. He says:
We don’t know how long the income loss will last, so it’s best to sock away some cash if you don’t already have a 6-month emergency fund.
In an ideal world, an emergency fund would cover at least three months of wages, but for many, $1,000 is a good starting goal. That said, Bankrate found 40% of Americans don’t have that base emergency fund in place. So, if possible, using the stimulus check to hit that $1,000 goal is a terrific first step.
Option No. 3: Pay down debt
If your household income can cover your regular expenses and you have some sort of emergency fund, consider putting your stimulus check toward outstanding debts. For example, if you have credit card debt, throwing a chunk of cash at your credit card bill will help to save you on interest payments in the long run; it can also help to give your credit score a bump by improving your debt-to-credit ratio.
If you have federal student loans, it may be beneficial to put the money toward your principal balance. Even though federal student loan payments — not private ones — have been paused through September in addition to interest accrual, you can still choose to make payments. Why not take advance of the temporary interest rate of 0% and pay off some of that debt?
Option No. 4: Donate the funds
If you don’t need the additional cash, donating it to someone who does is a worthy consideration. Perhaps you could split the money to help a few different people or organizations, or donate the lump sum to a cause close to your heart. In any case, you’ll be helping someone who needs it by spreading the wealth.
Forbes points out that charitable giving is particularly worth highlighting this year because of the additional tax provision for the 2020 tax season next spring. Sarah Hansen of Forbes wrote:
There’s a provision in the $2 trillion stimulus package signed into law … that lets non-itemizers take up to a $300 above-the-line charitable income tax deduction for cash donations made in 2020. “For those who take the standard deduction, this means that if you give $300 to charity, you’d get the $300 tax break in addition to the standard deduction ($12,400 for individuals and $24,800 for married couples filing jointly). It’s good news for both givers and charities—which need every penny they can get during the crisis.
Remember: Make a plan
Regardless of your financial needs, creating a plan for your stimulus check will help you designate your funds before you have a chance to spend them. In the long run, it will help to ensure you get the most bang for your buck.