For up to 80 million Americans, the big day finally arrived this past week: Stimulus checks tied to the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act were sent out by direct deposit.
Following unprecedented economic disruption caused by the coronavirus disease 2019 (COVID-19), the $2.2 trillion CARES Act, which was signed into law by President Trump on March 27, provides up to $500 billion to distressed industries, $350 billion for small business loans, $260 billion to expand the unemployment program, and a hearty $300 billion for direct payments to American workers and seniors.
As you might imagine, most folks are laser-focused on the stimulus payment aspect of the CARES Act. In total, up to 175 million Americans may receive a check, with high-income earners (above $99,000 in adjusted gross income (AGI), or $198,000 in AGI for couples), non-citizens, and dependents aged 17 and older not receiving a payout. Individuals and couples with respective AGI's under $75,000 and $150,000 can receive the maximum $1,200 stimulus check, with an extra $500 added for qualifying children aged 16 and under.
The big question, though, is this: What should you do with your Trump stimulus money?
While everyone's financial situation is undoubtedly unique, here are 12 smart ways to put your stimulus check to good use.
1. Buy essential food and household supplies
This probably goes without saying, but with nearly 17 million American workers being displaced by coronavirus mitigation measures through a three-week period, some folks are counting on their stimulus check to purchase food and households goods, as well as cover important expenses, such as an electric bill, rent, or a mortgage payment. This is first and foremost why the CARES Act was passed by lawmakers and signed into law by President Trump.
2. Create or bolster an emergency fund
According to a December 2019 survey from GOBankingRates, 69% of Americans have less than $1,000 in emergency savings. Over the past couple of weeks we've learned that this is nowhere near sufficient to cover expenses when a real emergency does arise. Using your stimulus check to create an emergency fund or buffer an existing one would be a smart idea that would help relieve stress and prepare you for when the next financial disaster does arrive.
3. Pay down credit card debt
Chalk this up under "staggering statistics," but American consumers ended 2019 with a whopping $4.2 trillion in debt that wasn't tied to housing, according to the Federal Reserve Bank of New York. Much of this non-housing debt is tied to credit cards. In order for consumers to dig out of this debt hole they've dug, they could choose to put some, or all, of their stimulus check toward paying down debt. Remember, the longer you choose to ignore your debt, the more interest you'll ultimately pay.
4. Open or add to a tax-advantaged retirement account
Stimulus check recipients should also consider opening a tax-advantaged retirement account, such as a Roth IRA. Although a Roth IRA provides no upfront tax benefits, it allows your money to grow over the long-term on a completely tax-free basis. When you do begin withdrawing from a Roth IRA during your golden years, it won't count toward your adjusted gross income for a given year. Roth IRA contribution limits in 2020 are $6,000 for those aged 49 and younger, and up to $7,000 for people age 50 and up.
5. Invest it in the stock market
If you have a healthy emergency fund, you might consider investing your Trump stimulus check directly into the stock market. Over the long run, the stock market has returned an average of 7% annually, inclusive of dividend reinvestment. This means the typical investor is going to double their money about once every decade. Plus, no asset class has consistently outperformed the stock market over the long run.
6. Invest in yourself with continuing education courses
With most states mandating that residents stay at home to slow the transmission of COVID-19, your stimulus check might be best spent on furthering your education. This may involve spending the time and money to improve your training at your current job, or it might involve learning a new skill, language, or networking technique that could make you more valuable hire. Or, if you're a college student, a $1,200 stimulus check is a step in the right direction toward paying the next quarter or semester of tuition.
7. Set up a tax-advantaged education account for your kids or grandkids
If you're a parent or grandparent that doesn't immediately need a $1,200 stimulus check, perhaps setting up a 529 plan for your kids or grandkids is the smart thing to do. According to College Board, the average annual cost for tuition at a public four-year institution rose 213% between the 1987-1988 school year and the 2017-2018 school year. Starting to save early for secondary education is a move your children or grandchildren will thank you for later.
8. Buy life insurance
Through this past Tuesday, April 14, there were nearly 2 million confirmed coronavirus cases worldwide, as well as almost 126,000 deaths. Considering that the U.S. is the epicenter of this pandemic, now would be a smart time for household breadwinners to consider buying life insurance to ensure the financial protection of their family should they pass away unexpectedly. Only 59% of Americans have life insurance, with around half of those insured found to be underinsured, according to life insurance marketing agency LIMRA.
9. Create a will or living trust
To sort of build on the previous point, COVID-19 is also a reminder that Americans really need to have a will or estate plan in place in case of the unexpected. An AARP survey in 2017 found that 60% of Americans did not have a will or living trust. Having these documents in place ensures that your wishes regarding your health are met, and that your finances go where they're intended upon your passing. Thus, using your stimulus check to create a will or living trust may be a smart idea.
10. Buy with a purpose by supporting your local businesses
It's no secret that around 70% of U.S. gross domestic product is based on consumption, so another great idea for your stimulus check, assuming your emergency fund and retirement accounts are in great shape, is to spend it among your local businesses. While brand-name businesses are clearly hurting, it's the mom-and-pop shops that are in the biggest danger of shutting down for good due to the coronavirus pandemic. Considering using some of stimulus check to support these community-based businesses.
11. Take care of vehicle maintenance/repairs
Another smart idea would be to use your Trump stimulus check to take care of maintenance repairs on your car, truck, or SUV to ensure that it remains in top working order. While it can be frustrating to pay $50, $100, or even more, every couple of months on simple maintenance procedures, it's a lot more amenable than being hit with a $4,000 bill to rebuild a transmission or a $10,000 cost to replace an engine.
12. Make a charitable contribution
Last, but not least, you can consider donating your stimulus check to a cause you believe in. Aside from an already long list of federally recognized charities that would be thrilled to receive funding, there are federally recognized charities providing medical services and supplies, local organizational funding, community support, and education, tied directly to the COVID-19 pandemic.
The only question now is, what do you plan to do with your stimulus check?