Over four-fifths of US adults will receive a stimulus check by the time they have all been sent or direct deposited. By now you will probably know if this applies to you. There are millions of people who are desperately waiting for these checks to help them get through the tough times brought on by COVID-19. There are also millions of people who are receiving these checks and have not had a significant financial impact due to COVID-19. Here are five ideas for five different situations for those who are not relying on immediately using the stimulus check.
$1,200: Entry-level employee with bad debt.
You are a hard-working twenty-something recent college graduate living in a city with a high cost of living. Your job is secure, and you are working from home, sheltering in place with your two roommates. You stopped commuting to work, all of your favorite, overpriced restaurants are closed, and you are no longer able to shell out $10 a beer at your favorite bar for the much-hyped sports game of the week. This has brought your discretionary spending down to the point where you have started to pay down the credit card debt you accumulated from being a little too careless prior to COVID-19. Use that stimulus check to make a large dent in that debt, paying down the highest interest debt you carry. Continue to pay it down and start working on a reasonable budget for when the restrictions are lifted. Once your city starts opening, the last thing you want to do is build up debt again by making up for lost time.
$1,200: Millennial without a safety net.
You and your partner are about to enter your 30s and keep your finances separate, each paying 50% of your combined expenses. You feel lucky to have just made the leap to move in together only a few months before the pandemic started. You have a budding career, continue to work to pay down your student loan debt and have even started saving for retirement by contributing enough to your 401(k) to get your employer match. However, you mostly spend what is left over and never manage to build up much in savings. Be sure to use your $1,200 to jumpstart an emergency fund. You never know when that cash will help you avoid the costly mistake of racking up debt in a time of need. Try to continue to build the cash reserve until it has grown to at least 3 months of your expenses.
$2,200: Divorcee needing more protection for the family.
You file head of household for your two teenage dependents and your finances are finally in order after a recent divorce. You have an adequate emergency fund and you even just started catchup payments to continue to max out your 401(k). However, you have not gotten around to updating your estate documents since you dissolved your trust with your ex. Your stimulus check is the perfect chance to gift your family an updated estate plan. Now, more than ever, it is especially important to know that you and your loved ones are protected and cared for in a crisis. Updating your estate documents can help relieve the anxiety of the unexpected.
$2,400: Newlywed couple who want to buy a home and retire early.
Congratulations on your recent nuptials! You and your spouse have combined finances and are especially interested in formulating a financial vision for your future, but you just don’t know where to start. You both save a ton of your paycheck toward your retirement and envision an early retirement abroad. However, in the immediate future you would really like to buy a home and cannot determine if it is better to use vested RSU’s or equity in a condo to come up with a down payment. It really sounds like you can use the services of a fee-only, fiduciary financial planner. It is important to get unbiased, professional advice, from someone who is trained to analytically make sense of your financial situation. Your stimulus check should cover most (if not all) of the cost of a starter financial plan.
$2,900+ Families with one, two, or more young children.
You and your family might be home juggling two jobs, helping kids with distance learning, maintaining a tidy house, and keeping everyone well fed. The last thing you are probably thinking about is how you are going to pay for your eldest child’s college tuition in 12 years. Well, not only does the day creep up faster than you think but starting to save early makes all the difference when it comes to compounding your savings over time. You can hit the ground running by opening a 529 plan and contributing your stimulus check. 529 plans are a special, tax-advantaged savings account meant specifically to save for future education expenses. They maximize your savings by allowing tax-free growth on the assets you contribute. A single plan can be used by multiple members of the same family.
Even if you don’t need your COVID-19 stimulus check for immediate relief, there are ways to use these funds to improve your future financial wellness.
The situations outlined above are just a few examples of how you can use your stimulus money to help your financial situation. Even if your specific situation is not mentioned in this article, your fee-only, fiduciary financial planner can help you figure out the best way to apply these funds.