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The Coronavirus is making a global impact. What we thought of as a virus half way across the globe, back in late 2019 and early 2020, has now spread to the United States, and cases are popping up in nearly every country in the world. It is officially a pandemic! This is not only effecting the health of people around the globe, but the economy, and thus our personal finances.
As Congress and the President passed the CARES Act, providing its citizens with the Economic Impact Payment based on your income eligibility, you now have a good problem to figure out. How to spend your coronavirus stimulus check! Here are a few ideas, in order of importance, depending on your personal financial situation. Pay Your Bills
The first and most obvious thing you may need to spend this money on are your bills. If you lost your job, were furloughed, currently seeing a reduction in hours, or think there is a chance one of those 3 will occur in the next couple of months, then you should use these funds for your essential needs. Food, housing, and transportation. For some this stimulus will be exactly what they need to make it for another month, while for others it will not be enough to survive another month. If the latter is the case for you, this is a great time to reevaluate your current expenses. Cut out any non-essential bills you have, or find ways to reduce the costs of things that are essential. Based on several articles I've read, the percentage of Americans living paycheck to paycheck is between 50%-75% for those who make under $50K per year. This means that missing just one pay period, for any reason, will setback over half of Americans financially. For those who make over $150K it's not much better, about 25% of these higher income individuals are also living paycheck to paycheck. So we know that higher income is not the only answer to resolving financial concerns, even if it is the largest factor. You still have to control your spending and save money!
Emergency Fund
Which brings us to the next option. Create an Emergency Fund! If there's any uncertainty with your current employment situation, then you may want to save this money instead if you don't already have an emergency fund. Or even if you already have one, use this money to make it larger. Your emergency fund should not be your only savings. An emergency fund is the foundation of your savings, meaning theoretically you should have additional savings outside of this fund. If you don't already have one, and you don't need to use your stimulus for your current expenses, use this check to jump start your emergency fund. Then work towards creating 3-6 months of reserves.
Contribute to your Retirement
If you receive a Coronavirus Stimulus Check, and you don't need to use it for essentials, you could technically use this towards your HSA or IRA. In fact, I would lean towards using it for your HSA if you have not already maxed it out, and of course assuming you have a High Deductible Health Plan already. This way if you need to use the funds for potential health reasons, due to Coronavirus or otherwise, the funds will be available for withdrawal or to make payments to your healthcare provider.
Most people know April 15th as typically the last day you can file taxes without being penalized. Well this year Tax Day is being postponed 90 days, so the new date is July 15th. Along with this date is also the last day you can contribute to an IRA or HSA to be claimed on your taxes for the prior year! HSA and Traditional IRA contributions are tax deductible, so this could also be a way to help lower your taxable income, thus lowering your tax bill or perhaps increasing your refund if you overpaid! You can also contribute to a Roth IRA, although you won't receive any tax reduction benefits for doing so, you are still eligible to use this additional time. With a Roth IRA your tax benefit will come in retirement, as you won't be required to pay taxes on your Roth IRA withdrawals. So if you don't have any specific thing you need to use the stimulus check for, use it to boost your retirement accounts and take advantage of the current drop in the market. Start a Business
If you're currently not working either due to being fired or furloughed, now is a great time to start the business you've always wanted to start. Or maybe just start a business that you can afford to start with the $1200 or more you receive from the Stimulus. Many of you may think this is not a lot of money to start, but there are many businesses that either do not require any capital at all, or that you can get started with as little as $100. In fact there's a great book called the $100 Startup by Chris Guillebeau, and you can use your stimulus check to purchase the book to gather some ideas. Or use your local library and/or the Libby App to access the book for free! You can start a website with a free trial, you can start a food delivery service with pre-orders, you can start a YouTube channel, a podcast, or many other things for free or definitely less than $1200. The key is to get started, and use these funds wisely to jumpstart the growth of your side hustle to turn it into a small business. Use your time and money wisely, especially if you find yourself currently with more time than money. There are a lot of great resources whether on YouTube, Podcasts, or via books at your local library or via apps like Libby.
Spend It!
Last but not least, you should spend your Stimulus Check. While this is the last option, for many of you it will be the first option, and it is also the option the government expects you to use. Their expectation is that most Americans will spend their money, by choice or by force since many will need to use it for their essentials. But for those who don't need it for their essentials, already have an emergency fund, have already maxed out their retirement, and already have additional streams of income, then spending it may actually be a good idea. There are many businesses, small and large, which actually need you to go out and spend your stimulus check so that they can stay in business. Personally I would lean towards supporting small businesses when you get the chance. When will that chance occur? Who knows, because many non-essential businesses are currently closed or have modified the way you can interact with them, or perhaps if this stimulus isn't enough, they may never reopen their doors again. You can also spend it on people you know are in need, as spending the money doesn't just mean buying things for yourself. Take the time to help someone in need, or donate to an organization who is helping those in need.
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