Financial Planning

What To Do With Stimulus Checks

This afternoon the Senate passed the coronavirus relief plan to help small businesses impacted by the social-distancing-forced shutdown of business and set the stage for a larger stimulus package that is rumored to be between $850 billion to over $1 trillion; this is the stimulus plan that is supposed to put checks in the mailboxes of every American.

As of today, I’ve seen everything from $1,000 a month per adult to $2,000 a month per adult and $1,000 a month per child to $4,000 a month per adult to a range of amounts depending on household incomes. Much like many things right now, no one really knows what the final numbers will be, but let’s take a look at your options once/if the government starts sending out checks and keep sending them through the crisis:

I’ve simplified how the stimulus checks can impact households. There will be households that will need every penny and more to meet ends meet. There will be households who may need some of the stimulus checks to replace lost income but not all of the additional income. Finally, there will be households who will continue to make enough money and won’t “need” the additional income. 

I. Cover The Necessities

If you find yourself impacted by the closing of restaurants, retail stores, doctor’s offices, or any other business you will obviously want to use the stimulus funds to support your family. Pay your rent or mortgage. Pay your utilities. Buy food. Rent a movie or two to keep entertained. Take care of the necessities. Unfortunately, there will be families that will still struggle even with the additional income from the stimulus plan, but hopefully, they will be able to cover the important expenses and have a little less worry and stress.

II. Supplement Reduced Income

If you find yourself with reduced hours and income, then the additional funds may leave you with extra each month. You have a few options if you find yourself in this position:

Start/rebuild/or build a cushion in your emergency fund

We’ve all seen the statistics showing a high percentage of Americans cannot cover a $400 emergency; if you’ve covered your expenses and your emergency fund needs some attention, take the opportunity to address it. The rule of thumb of 3-6 months of expenses is going to be challenged, so don’t be afraid to increase it beyond those amounts, especially if there is the potential for your hours or income to be reduced further in the future. I’m sure you’ll see this plenty of times over the next few months, cash is king—-build your reserves while you can.

Pay Down Debt

If your emergency fund is in good shape, but you’re carrying debt, it may be time to aggressively attack that debt. Imagine exiting this crisis with your debt paid off (depending on the balances) and your monthly budget significantly lower because those payments no longer exist. You’ll find your future self able to save more, start investing, be more charitable, or even give yourself a little boost in lifestyle. If your not sure how to approach your debt a financial advisor can help you determine which debts (not all debt is bad) you should attack and how to attack them.

Invest

If your emergency fund is in good shape and your debt is in control, then you could look to boost your investing and take advantage of the stock market decline by investing in the market at prices significantly cheaper than just a few weeks ago. Disclaimer: if you choose to do this be sure you are comfortable with the market volatility because I don’t think it’s going anywhere anytime soon.

This is when you might want to talk to a financial advisor about investing 🙂

Stimulate The Economy

Your final option is to spend those extra dollars—-put that money back to work in the economy. More on this in a minute

III. Don’t Really “Need” It

If you find yourself in the position to be lucky enough to not really need the additional funds, you have the same options as above plus a couple of others I’ll introduce.

A quick recap from scenario II:

  • It might be worth putting a little extra in your emergency fund…remember cash is king.
  • Many families that might not “need ” the additional income find themselves carrying debt and it would be wise to eliminate or reduce this debt.
  • Again, the markets are on discount from just a few weeks ago—they could fall further and it could take a while for them to recover, but having the opportunity to put more money to work in the market is not a bad thing. Fund your Roth IRA. Fund 529 accounts. Fund a taxable investment account. All of these are great options—talk to your financial advisor to see what might make the most sense for you.
  • One of the main goals for the stimulus plan is to keep the economy moving forward and there’s no better way to stimulate the economy than to spend the money. It seems crazy for a financial advisor to offer to spend the money as an option, but if you can check all of the above boxes, then supporting local businesses or putting the money back into the economy is not necessarily a bad thing.

Now for a couple of additional options:

Start A Business

Another way to stimulate the economy would be to start a business. Has your side hustle become something you’d like to become a bigger part of your life? Is there a business you’ve wanted to launch but never quite had the capital to get it off the ground? Well, this may be the opportunity you’ve been looking for to start that business. There is going to be a tremendous opportunity for innovation coming out of this crisis, which means new business opportunities.

Don’t let the term innovation intimidate you. Innovation doesn’t have to mean launching a new tech company. Innovation could mean launching a virtual tutoring business. It could be launching an online course and coaching program to help students with college essays and admission. Innovation will show up in every industry and in different ways. Be sure to approach launching a business responsibly—a good idea doesn’t guarantee a good business. Seek mentors, a financial advisor, a CPA, and an attorney to make sure you give your business the best chance at success. Don’t squander this gift you’ve been waiting for.

Oh and one more thing, cash may be king, but so is content. Leverage content marketing as much as you can for your new business 🙂

Be Charitable

Maybe entrepreneurship isn’t in your blood. Maybe you feel inclined to be charitable. If you don’t “need” the additional funds you can always donate to those in need. There are families who rely on school lunches as their main source of food and without school, they are missing meals. There are plenty of people in need and your stimulus money would go a long way helping others. If you need help finding organizations and causes, just follow my friend Tyrone Ross up and he’ll be able to give you plenty of ideas.

In all of these scenarios, the right answer for you might be some combination of the suggestions. You could add a little buffer to savings, invest a little, pay down debt, spend a little, and give a little.

My Plan

Given that we are a dual business household, my plan is to initially hold on to additional funds. My wife just closed the doors to her physical retail store and is relying on her online sales going forward. Time will tell how long people want to continue to buy trendy clothes for their little boys—we’re hopeful she’ll continue to have sales, but are prepared for them to slow down. My business is heavily tied to the market—I’m not 100% assets under management, but the majority of my firm’s revenue is AUM, so you can imagine business revenues have taken a hit as of late.

Thankfully, we are in good shape to grind through the market decline and recession but a little extra buffer will be comforting until we see light at the end of the coronavirus tunnel. I’ve shared on here my firm’s plan to hire another advisor in the next month, which has been temporarily put on hold—additional funds, both to me and to the advisor who will be joining, would allow for us to move forward with RLSWM’s growth; this is another reason to keep a little extra cash and inject it into the business.

Here’s the part of my plan that I’m most excited for. Once we see the light—once we know the worst is behind us and we’re on our way back to normalcy, I’ll be finding charitable ways to use the funds that are left, which is hopefully all of what we receive.

The patriot in me should tell you to spend the money you receive—spend it on the necessities and spend it on carryout from your local restaurants and spend it on things. Put the money back into the economy so businesses can stay open and continue to pay their employees. Some of the stimulus you receive will naturally find its way into the economy and accomplish what the government hopes it will. But, as a financial advisor, I want to see you do what is best for YOU and your family. For many, that will be to save money and build up reserves because we don’t know how long this is going to last.

Eventually, that savings is going to find its way into the economy—it’ll eventually get spent or invested but for now tightening up your financial plan is a smart thing to do.

Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.