As of today, The senate has passed the latest 1.9 trillion Covid relief bill which will go to the House of Representatives for a final vote. Then if it passes, it will go to President Biden’s desk for signature. Part of the new Covid relief bill is stimulus checks to a certain segment of the population. But the question becomes what to do with stimulus checks? These are the strategies and prioritizing that we have done in the past.
* We are not a CPA, these recommendations are for entertainment only but these are our recommendations based on what has worked for us in the past. Do not take this as financial advice and should check with a CPA.
First, who qualifies?
As the bill stands now, there are income thresholds to be eligible for the checks. The most important is that to get the whole check, you have to meet 1 of 2 criteria. The checks will be $1,400 per individual including dependents. You need to make less than $75,000 as an individual or $150,000 as a couple. If you make more than this you may get a smaller check but only under a certain threshold. For this, there is a hard cut-off at $80,000 for an individual and $160,000 for couples. This includes checks for dependents as well.
Make sure that, as with any money, you prioritize what you should be putting it towards. Each person’s experience will be different. This should be treated the same as you would when creating a budget. Put it where it will do the most good for you and your family. You should always put normal expenses at the top of the list. When deciding what to do with stimulus checks, you should always pay off expenses that you would have to put on a credit card.
Pay for food
Making sure there is enough food should always be a priority. There are other services available if this becomes an issue, including food stamps. This should be the first goal, especially for families with children. Take advantage of any program that you are able to for the time being. We are moving towards the end of the craziness but could be dragged out longer. This should always be the top priority when debating what to do with stimulus checks.
If rent has been an issue, you should take advantage of the various programs. This may be rental assistance or eviction moratorium. Part of the caveat with this is you should always try to pay your rent or have enough to pay it later on. There have been exceptions to the eviction moratorium, so it is best to try to pay what you can to keep up with your bills. Same goes with mortgages. You should take advantage of mortgage forbearance if possible; which is usually done through your lender.
Pay off high-interest-rate debts
As stated in other articles, prioritize your high-interest debts first. It can feel crippling to put money into your debts and never feel like you’re making any headway. There are two schools of thought with this. There are other financial gurus that say pay off the smallest amounts first. In some ways this makes sense, however, if you are stuck paying higher interest rates, you will likely be paying more in the long run. We have used paying off higher interest student loans first which saved us quite a bit of money in the long run. Oftentimes, credit card debt has the highest interest rate. You should try to pay this off as quickly as possible. It can easily snowball out of control. Put money towards those loans if possible to pay off as much as possible.
This is similar to the above, however, it may not have the highest interest rates at this time. With the past Cares act and the executive order by president Biden, interest has been halted for the next couple of months on federal loans. By stopping the interest rates, this allows the loanee to get ahead on the principal balance and actually get ahead. When this started, I paid off the highest interest rate private loans first. Which then allowed me to get further ahead. It is not uncommon to pay almost double the original loan amount due to interest rates. In the past, I have had interest rates of around 14% in private loans.
If all is paid for
These are suggestions if you have already paid your bills or are at least up to date THis is more to plan for your future if you are stable on your expenses. If you are paid up on your bills/debts, then you may still be wondering what to do with stimulus checks. Time to plan for the future.
Build up an emergency fund
One of the few things that are universal for financial advice, is to build up a safety net or emergency fund. This is anything from FIRE system to Dave Ramsey. It is usually recommended at least $1000 for an emergency fund. I would recommend, if possible, to shoot for at least 1-2 months of expenses starting. This can be added to later on, usually up to 3-6 months’ worth of expenses.
Plan for retirement
If you already have an emergency fund started then may want to either invest some or put some away for retirement. Now is a good idea to put more towards retirement. Many businesses have put their contributions on hold, so it would be put more away to make up the difference. Especially, if you are retiring sooner rather than later. This could be in a Roth IRA, 403B, etc. depending on which you have or your business offers.
Investing is always a risk, there is no way around it. But, you can also make quite a bit by slowly building your portfolio. This should be after putting money towards the important areas above and paying down debts. Now is not the time, to use money that could be better spent in other areas. However, if you are going to invest, make sure that you are smart with your money whether investing in stocks, ETFs, or crypto. If you are interested in this, check out our article on Webull.
College savings plan if you have children
What better way to look towards the future is to plan on a college fund for your children. This can be used for either college or trade school. But either way, this gives them a stepping stone later in life. This can be slowly added to later on through the years. And it may not cover all the expenses at that time, but it will save them money overall.
The world has been nothing but chaotic over the past year. Many have lost a lot during all of this and continue to struggle. If you are paid up on your bills and are well off, it is not a bad idea to donate. This can be donating money to charity or even donating clothes to organizations like goodwill.
Stimulate the economy in your area through local businesses
It is often said that Small businesses and local businesses are the backbone of America. However, many of them have been hurt significantly in the past year. What better way to use the stimulus checks than to bringing business back to the local arena. This could be local shops, restaurants, or household improvements. Any little bit helps to support local businesses. Even if you are unable to spend money at these businesses, sharing their information and getting their names out can help.
Plan for next year
If you are one that usually has to pay in for taxes, this money could be set aside to put towards next year taxes. This is especially true if you are a small business. It can be best to start planning for the end of the year. If you do not usually pay in, then this can be skipped if you are confident that you wont need to pay more in taxes.
Vacations later on
I couldn’t write an article without discussing traveling. This is the last thing that I would be using the stimulus check for. Mostly due to my wanting to pay off as many debts as possible and planning for the future. However, if you have a system down and stick to a budget with minimal disruption, then planning a vacation is a great idea. It can be as simple as a camping getaway in your own state or as big as Disney.
Have you thought of what to do with stimulus check? Pay off debts? Invest some? Let us know in the comments below?