As most people already know, the current pandemic has had a major impact on lives across the globe. For those living in the US, most citizens should see a stimulus check within the next few weeks. This money aims to give those impacted by stay-at-home orders and non-essential business closures some additional income to assist with any lost wages. Recent numbers show that over 639,000 cases and 30,000 deaths have been reported in the US while 22 million Americans have filed for unemployment over the past month. (4/17/2020)
Many of you may know exactly how you’re going to use the check when it arrives, others might not. In this article we will cover some of the ways you might be able to benefit from this check, ranging from covering necessary expenses, paying off some past debt, and building your savings.
What is the Stimulus Check?
Before we starting talking about how to spend the money you expect to receive, we should first define what exactly you’re getting.
Towards the end of March a $2 trillion relief package was signed to help lighten the impact of the COVID-19 pandemic. Part of this package contains the stimulus check. Most Americans whose gross income is less than $75,000 should be eligible for up to $1,200 and $500 for each qualifying child you claim.
These checks are not taxable income, rather they are refundable tax credits. This means that assuming all of your tax return information is correct, you will not have to repay the check next year. Since these checks are based off of 2018 or 2019 tax returns, you may even see additional credits after you file for 2020.
How can you spend yours?
It is important to realize that, with any source of income, prioritizing where and how to spend the money at your disposal is key to long-term success. We have another article that discusses savings strategies that you can check out here, but first let’s talk about a few different spending strategies that you might use to make the most of your check.
Necessary Spending
As with any source of income, it’s important to determine what expenses are absolutely necessary and what can be put off until later or when extra money is available. For me, the things that fall under the category of Necessary Spending are things like: Rent, Food, Gas, Utilities, High-Priority Payments, and even some Entertainment.
These are things that help you get through the day-to-day. At the end of the month, what things are an absolute necessity? While these checks might not cover everything on your list, it is important to start looking at what you can and can’t live without. While you might find it odd that I have included entertainment in this category, I think it is important to remember how critical mental well-being is to your overall health. Entertainment doesn’t have to be a new video game system, or a huge event, but it could be something as simple as a takeout or delivery dinner, a new board game, or just a simple movie rental and popcorn.
Discretionary Spending
Now that we have looked at some of the necessities that should be prioritized when you have some extra income, we should talk about the things you might start to consider if there is a bit left over from your stimulus check that you’d like to spend. For me, items that fall under this category include: Clothing, Entertainment, Travel, Subscription Services, and other fun things you want to buy. These items are things that you don’t need to make it through the month, but are niceties that make things a little easier or more enjoyable.
Subscription Services
Since I have some extra money to spend, I have chosen to continue my Spotify, and Netflix subscriptions. As I find myself at home more and more, these are small things that make my day a little more enjoyable. However, I know that if money starts to get tight, I can sacrifice these things to pay for more necessary items without losing too much. As many alternative models to subscription services exist, like ad-supported or a limited selection, you don’t have to completely miss out on the things you enjoy. Another great alternative to subscription services is to transfer from personal accounts to family/group accounts. Partnering with friends or family can lower each individual’s total expense, as he total cost of a subscription can be split between multiple people.
Clothing
When it comes to clothing, this will definitely be more subjective based on the individual. Since I already have a selection of clothes that I rotate through, I don’t have the need to purchase extra items. While I have recently become a fan of fun socks and designs (don’t judge me) I used to pick up a pair or two if I came across a few that I liked. Now that I’ve started to become more aware of my spending and my desire to focus on necessities, I’ve made the conscious decision to hold off on buying any new pairs. You don’t need to stop buying clothes, but it might be worth taking the extra second or two to stop and think, “Do I really need x right now? Can it wait? Is there something else I could buy with this instead that I need more?”
Much like clothing, entertainment spending can be more or less important based on your individual circumstances. As someone who lives alone, I don’t need to keep anyone else occupied. For families, especially those with children now home all day, you may find entertainment falling under the category of necessity. This is more than okay, however there are always ways to look at what you’re spending and try to be a little smarter about it.
Investment / Savings
For those who are don’t require the stimulus check to go towards bills or expenses, you might feel unsure about how you want to use it. One major priority for anyone is to start building an emergency savings fund. This fund should be large enough to cover a few months’ worth of expenses. This can be a great safety net should your current situation change.
So, you’re able to cover your expenses and have your emergency fund ready to go, now what should you do next? Financial planners are suggesting you save or invest it. As mentioned before, we’ve looked at different savings strategies, so I’d recommend reading through that article if you’re looking to get started. If you’re fairly young with retirement quite a ways ahead of you, investing your check might be a great course of action.
Investing
For those new to investing, services like Robinhood, or Acorns makes investing pretty simple and straightforward. Robinhood offers users the ability to purchase and trade stocks, funds, options, and cryptocurrency to create your personalized portfolio. The great thing about this services is, its all commission-free, so all of your money goes straight into your investments, rather than a percentage going to the company. This lets you invest any amount that you’d like, and get that percentage of the share (rather than being forced to purchase an entire one).
Additionally, Acorns is a great service that lets you start investing, without the need to research or choose what to invest in. Different portfolio options allow you to choose what level of risk you’re willing to take. Ranging from Conservative to Moderate and Aggressive, your investments can be split into various bonds and stocks across a wide range of holdings. The funding for these investments comes from transaction round-ups or one-time transfers. This way you don’t have to think about funding your account, as it does it automatically for you.
Saving
Finally, another great thing you can do with your check, investing in yourself. For many of us who find ourselves working from home, devices like our phone or computer might mean the difference between being connected and being isolated. Everything from communicating with friends or coworkers, to buying some delivery or item online are all done through your devices. You might decide to invest your stimulus check into these items, whether that’s an upgrade you’ve been putting off, or starting a fund to replace something broken. If you don’t need the funds for a while, something I highly suggest is a High-Yield Savings Account. This will allow your money to grow without interruptions at a higher-than-average rate (sometimes up to 2% compared to the %0.01 percent for typical accounts) until you’re ready to use it.
Whatever you decide to do with your money, the most important thing you can do is be safe. Take care of yourselves, your friends, family, and loved ones. We here understand that right now is certainly a difficult time for everyone, and we just want to take a moment to say thank you for supporting us and we hope to continue to provide fun, informational, and worthwhile content.
Disclaimer: The thoughts and opinions expressed in the article are personal opinions only. This should not be construed as financial advice for your given situation.
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This was very insightful, I’ve definitely been limiting my spending as well. Thank you for sharing!
I really enjoyed this article. It is so important to spend our money wisely, now more than ever! Thanks for sharing!
Great tips, thank you!