The U.S. Senate voted unanimously to approve a $2.2 trillion stimulus package on March 25. This bill provides substantial financial resources for small businesses and industries that have been hurt by the COVID-19 pandemic and subsequent shutdown of much of the economy.
Part of the appropriated funds will come in the form of checks of up to $1,200 sent straight to individuals. Not everyone will be eligible for this stimulus, and it isn't very clear yet how all of this is going to be distributed. You're only eligible for the full amount if you make less than $75,000 as a single filer, or $150,000 if filing jointly. Each child you have raises the payout by an extra $500.
With the market down, it might be tempting to put that extra cash into stocks. But there is an order of priorities that you should assign to your stimulus check. Here's a smart sequence to take.
1. Invest in the essentials
Unless you are comfortable financially, this isn't the time to be a hero. Extra money like this should go toward the essentials: a stockpile of food, toilet paper (if you can find it!), and the like. It's also wise to be really frugal with those purchases. Meals that you can cook at home are usually cheaper versus microwaveable or prepared foods that are more tempting for their convenience. Buy soap, laundry detergent, sanitizer, and anything that can help you avoid germs.
Once you cover the household goods, you can use the rest to pay your utility bills and your rent or your mortgage -- especially if your salary has been interrupted.
To say that the current crisis has caused a royal headache to the labor force is an understatement, so take care of liabilities first.
2. Have the essentials covered? Then save it.
Some will point to investments as a great way to use a stimulus check, since there are deals right now thanks to the sell-off. But this might not necessarily be the wisest move because it's impossible to say exactly how long the coronavirus economic slump could last.
So if you're receiving that cash infusion and don't need to spend it immediately, it wouldn't hurt to save it. Buying stock can lock up that $1,200 in securities, even as the current turmoil could become more drawn out. Even with federal aid, there is a great deal of talk that this could turn into a recession. Fed Chairman Jerome Powell has said that the country may very well already be in one.
You'll never get burned by having a little extra cash set aside. The key word here is liquidity. Save it for that rainy day, even if it hasn't happened to you yet.
3. Freed up on essentials and savings? OK, then invest.
Once all the truly important things are taken care of, it's safe to invest that extra little chunk of cash. There have been a lot of ideas on where to invest stimulus money. What you do depends largely on your level of experience.
First-time investors might look to things like exchange-traded funds (ETFs) or mutual funds to get started. These give you exposure to a great deal of diversity in the market, even with a small amount of money. One of the easiest ways to do this would be through an ETF that tracks the broader market. The SPDR S&P 500 ETF Trust offers just that, seeking to follow the S&P 500 index. This fund offers an excellent investment vehicle for beginners.