By now, most of us are all-to-familiar with the Coronavirus Aid, Relief, and Economic Security Act (or CARES Act) passed in March 2020 to assist families, individuals, small business owners and medical facilities across America amidst the COVID-19 pandemic.1 As part of this legislation, certain individuals and families became eligible to receive stimulus checks of up to $1,200 per person.1 Many Americans have received their checks already, while some are preparing to receive theirs shortly. If you (and/or your spouse) received a check, here are six smart ways to spend it:
#1: Cover the Essentials
These stimulus checks are designed to help Americans who may be financially struggling due to COVID-19. Whether you’ve been furloughed, forced to reduce hours or otherwise face a financial uphill battle, consider using this money to cover any immediate, necessary expenses around your 'four walls': food, shelter (including utilities), clothing and basic transportation. While odds are high this won't be the last infusion of free cash from our benevolent politicians (I suspect we're seeing the widely-feared introduction of universal basic income), it's prudent to assume this could be a one-time, mini-emergency shot in the arm. Now might be a good time to review your bills online to determine how you can be most strategic in deploying this cash and finally do that budget you've been talking about for years. Ask yourself how long your new money could last on that list of necessities.
If you’re currently receiving unemployment payments from 'Uncle Sugar,' remember to account for this income when making your financial strategy as well. And if you’re still finding yourself coming up short, remember to check with companies (power companies, insurers, gyms, cable companies, etc.) regarding any relief efforts or forgiveness policies they may have enacted amidst the global pandemic. You might be surprised.
#2: Fill Your Emergency Fund
According to a recent study conducted by the Federal Reserve, four out of 10 adults would have difficulty covering an unexpected $400 expense.2 If you're in that demographic, first admit to yourself that (exceptions and legitimate emergencies notwithstanding) you've likely made some pretty poor life decisions to arrive at this point and this is your official wake-up call. Four out of ten adults in the wealthiest country in the history of the world is rarely the result of discrimination or bad luck, and far more likely to be the result of dysfunctional programming from your family, environment or educational upbringing. With so many Americans living paycheck-to-paycheck; this unexpected, unearned and unpredictable gift from Congress might just be the cushion needed to prepare for future financial obstacles and aid in living like a financial grown-up.
If your income remains largely unaffected by the pandemic or you find yourself with some additional dollars leftover, then it’s never a bad idea to tuck some away for a rainy day. If you don’t have an emergency fund, it's well past time to get serious and if this crisis isn't a message from the universe to do so, then I don't know what is. Most of us have heard that an emergency fund should have three to six months’ salary to help cover unexpected expenses such as job loss, medical bills, home damage, car repairs, etc. If you've been in the workforce for more than 15 minutes and still find yourself unable to squirrel away a few months worth, then it's time to seek out a financial counselor to address a problematic cash-flow situation that transcends COVID.
#3: Address High-Interest Debt
Total non-housing household debt in America sits at $4.2 trillion, as of the end of 2019.3 That's trillion with a T, or more than twice the amount of U.S. currency than actually exists in the world. So there's that.
While some of our debt includes lower-interest debts like auto loans or student loans, $930 billion of that amount is attributed to credit card debt, that is to say, spending money that we don't have.3 And there's also the minor problem that debt is slavery, which can be a frustrating situation for someone who considers themselves smart. Regardless of the source or the rate, it's important to recognize and internalize that economic slowdowns and recessions seem practically designed to crush those who are highly-leveraged and also those with excessive overhead. And this will continue their eternal push towards separating the have's from the have-not's in our society. The widening wealth gap has many complex components spanning the socioeconomic spectrum, but in my two decades in finance the most prevalent remains the poor personal decisions made by us as individuals. While there are always extenuating circumstances and bad luck, it sometimes appears that many Americans have been conditioned to fail and this crisis is exploiting our weaknesses. That is, unless you can brag about your exceptional personal finance course in high school that prepared you well for the world of money, our money outcomes are usually the result of money experiences.
All that to say that if you’re currently facing any amount of high-interest debt, such as credit cards or personal loans, paying this down should be your top financial priority after covering the essentials. If your current financial situation allows it, use your stimulus check to make a dent in (or pay off completely) any high-interest debt your family may have. You can rarely earn enough to outpace the cost of debt and I've discovered that a good life paradigm is to be on the other side of compounding interest.
#4: Support Local Businesses
Now more than ever, it’s important to patronize local shops in your community. If there is one thing we have out here in the Texas Hill Country, it's local businesses. And while we've been blessed to continue working through much of the national shutdown, we are not immune. Helping these folks may include ordering food from local restaurants, buying gift cards from your favorite boutique or frequenting your local coffee shop for take-out. Small business owners have been some of the hardest hit during these times, meaning your business could make a big difference in their ability to continue operations.
Remember, most of these local proprietors aren't don’t have the backing of a larger corporation or franchise. They’re local people experiencing a severe drop in revenue that could jeopardize their position in your community over the coming months. And even local franchisees often have deep roots in their communities, supporting the commercial tax base the pays for our first responders and roads. The various government programs (PPP and EIDL) are not permanent and likely not going to be enough to weather this storm. If these businesses close, many will never reopen.
#5: Donate it
If you find yourself in the fortunate position of feeling financially comfortable during the COVID-19 pandemic, look deep to consider giving to those most affected - medical facilities, food banks, shelters, etc. With these groups stretched thin even under normal circumstances, the devastating impact of COVID-19 means assistance is needed now more than ever before, and the federal government will not be able to support them fully, or forever. Never has a dollar had the potential to go so far.
While the ability to make physical donations (such as clothing, toys, pantry items, etc.) may be limited right now, you can still use your stimulus check to provide crucial monetary relief. Search for charity organizations using tools such as Charity Navigator or The Better Business Bureau’s Giving Alliance to find ones that are legitimate and well-aligned with your personal values. There is no shortage of needs or avenues for giving in even the smallest communities.
#6: Fund Your Future Retirement
They often say in real estate and the market, that profits are made in the buy, not the sell. History may judge this pandemic as a historic opportunity to buy "on sale." Many uneducated or inexperienced investors willfully traded their shares of stocks and bonds for cash in the last two months, and if history is any guide, many more will break in the ensuing months. The one thing we know for sure is the stock of many great corporations are cheaper today than it was six months ago. No matter how far off from retirement you are, putting any excess income into a retirement savings account now can be a rewarding move. If you’re able, consider using your stimulus check to pad your IRA or 401(k). With the power of compounding interest, that $1,200 could turn into a couple thousand or more by the time retirement rolls around. If you don't believe me, plug $1200 into the following calculator.
If you had capital available and invested those into reliable assets like property and securities in 2008-09, today you'd likely feel pretty smart. And while we're certainly not out of the woods yet with the health nor the financial crises we're facing, these times of peak fear can often uncover compelling opportunities that we may not see again for years. If you are interested in discussing options, please find a trusted financial advisor or smart money friend to schedule a no-cost review of your situation and smart investment moves. These are unprecedented times, meaning many of us are left wondering what’s the best next move for our stimulus checks. Whatever you choose to do, be intentional with these additional dollars.
And if you can't decide what to do with your money, then you can always take me out to lunch.
When restaurants open.
And our politicians say we're allowed to leave the house.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.