Free money sounds amazing, except when it's prompted by a global pandemic and massive unemployment. If only we could get a check from Uncle Sam when times are good, right? But this is where we are, and if you make less than $99,000 as a single filer or $198,000 as a married filer, you should see some much-needed cash coming your way soon.
On March 27, 2020, President Trump signed a $2 trillion coronavirus relief package that includes, among other things, direct cash payments to more than 80% of American households. The highest payments will go to individuals making less than $75,000 annually -- this group will receive $1,200, plus another $500 per dependent child. The payment amount goes down by $5 for every $100 in income above $75,000, up to $99,000. And, the government will use your adjusted gross income on your most recently filed tax return to calculate your payment.
If you think you might qualify, see the coronavirus stimulus calculator provided by The Washington Post to estimate your payment. Then, make a plan for using these funds wisely. Here are five strategies to send you in the right direction.
1. Open a high-yield savings account
If you don't already have one, open a high-yield savings account. Even though rates are headed south, you can still find accounts paying 1.5% to 1.7%. That's many times more than what you'd earn in a standard savings account. For perspective, an APY of 1.7% on a deposit of $1,000 earns $1.41 monthly. That's not going to make you rich, but it beats the $0.07 you'd make if you're earning the national average savings rate of 0.08%. Even if you end up spending most of your stimulus check, you might as well earn a few extra pennies while it's still in your account.
2. Cover essential bills
If your income has taken a hit, redo your monthly budget to prioritize expenses that cannot be put off -- such as food, necessary prescriptions, rent, and utilities. When public transportation won't get you to work or to job interviews, car payments are crucial, too.
Other debt payments are lower on the priority scale. To be clear, not paying your credit cards for a couple of months will be expensive and will destroy your credit. But if you have to choose between your rent and your credit card, rent wins. In that scenario, contact your credit card company and explain your situation. You may be able to negotiate temporary "hardship" terms, such as a lower monthly payment and interest rate.
3. Pad your emergency fund
Fed official James Bullard recently went on record in a Bloomberg interview to say that U.S. unemployment could hit 30% later this year. That's higher than unemployment's ever been in this country. Even in the Great Depression, the jobless rate peaked at 24.9%.
These are unprecedented times. No matter how secure your job feels today, there's just no predicting how things could play out tomorrow. A nice sum of cash in an emergency fund could make the difference between getting through 2020 financially unscathed and losing everything. If you already have an emergency fund, use your stimulus check to pad it. If you don't have an emergency fund, that stimulus check should be your first deposit.
4. Pay off debt
If you are confident your job is stable, use your coronavirus stimulus check to improve your financial stability by paying off debt. This is an option for healthcare workers, researchers, and truck drivers, for example, who are in demand during this crisis.
Don't pay off debt if you face any risk of income loss, unless you already have a sizable emergency fund on hand. Yes, you'll incur extra interest costs for delaying repayment. But the added liquidity could keep a roof over your head for another month if your income is impacted.
5. Support your community
Perhaps you are already insulated from the worst financial impacts of coronavirus, with stable income and a considerable emergency fund. If you don't expect to need the stimulus money, why not use some of it to help others and bolster your local community? Ways to make a local impact include:
- Donate to your local food bank.
- Buy gift cards from local businesses.
- Have groceries or meals delivered, and then give your driver a big tip.
- Book future hair appointments, dance classes, manicures, and other services now. Pay up front if you can.
- Check GoFundMe for local small business fundraisers.
- Buy a CSA from a local farm.
Take care of yourself first
Admittedly, free money doesn't feel free when you have a landlord and six creditors wanting a piece of your proceeds. Be strategic about using those funds. Do what you can to keep a roof overhead and food on the table, and let the creditors wait if it comes to that.
If you have the luxury of stable income and ample liquidity, use your stimulus check to pay down debt and invest in your local community. These are challenging and stressful times. Don't underestimate the emotional value of improving your financial stability and taking feel-good actions to feed the less fortunate and keep local businesses afloat.