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As part of the federal coronavirus relief package, many Americans will be receiving a stimulus check of up to $1,200 per adult (and $500 per child) in the coming weeks. The IRS announced that direct deposits had begun as early as April 11.
This money is intended to help U.S. households weather the storm of the coronavirus pandemic and pump some extra cash into the economy by supporting consumer spending. However, that doesn’t mean you need to spend your entire stimulus check right away or all in one place. Just like any short-term financial windfall, this stimulus check can make the biggest difference for your finances if you make a plan for how to use the money.
The best use of your stimulus check depends on your financial situation and your immediate, medium-term and long-term financial goals. If you have recently been laid off from your job or have experienced a loss of work hours or another loss of income due to the COVID-19 crisis, then you likely will use this stimulus check to help meet your immediate financial needs. But if you are still employed and receiving your usual paycheck, this stimulus money could potentially help you shore up your savings or invest for the future.
Here are six ideas for how to utilize your coronavirus stimulus check to get the biggest benefits from this extra money, depending on your most urgent financial priorities.
1. Cover the Basic Essentials
Has the coronavirus caused your hours to get cut, or has your employer reduced salaries by a certain percentage? Use this money to patch a hole in your paycheck. Depending on how much money you’re missing in lost wages, you could divide up the stimulus check funds to help have a “full” paycheck for a few more months.
If you’ve been laid off or furloughed from your job, hopefully you have already been able to sign up for the new expanded unemployment benefits. But even if you’re receiving unemployment, your stimulus check could still be useful for paying bills.
Especially if you’re unemployed, it’s important to be strategic about how to use the stimulus check funds. Since the stimulus check is a one-time payment, and your unemployment benefits are continuing for a period of time, you may want to set aside the stimulus check as a temporary “mini-emergency fund.”
You could use this mini-emergency fund for a few different financial goals during the next few weeks or months, such as:
- Making minimum payments on your credit card balances or other debts
- Making payments on your mortgage or rent
- Staying current on your utilities
- Paying your auto or life insurance premiums
For example, if your income has decreased by $500 per month due to a pay cut or lost hours at work, you could use your $1,200 stimulus check to cover that $500 portion of your rent or mortgage for the next two months, with an extra $200 left over.
The stimulus check also can be divided up into a few chunks of money to help you make partial payments on your rent or mortgage, in case that is an option that you need to pursue. If you cannot make your full rent or mortgage payment, talk to your landlord or lender as soon as possible.
Many lenders, utilities, landlords and insurance companies are offering forbearance programs and relief efforts to help people who are struggling to pay their bills during this unprecedented situation of sudden economic shutdown and mass unemployment. Don’t be afraid to call your landlord, bank or loan issuer to ask if you can work out a different payment plan.
There are a variety of mortgage relief programs, help for renters, moratoriums on evictions and other efforts happening at the federal and state levels to help keep people in their homes even if they can’t pay their bills right now. But be aware of the long-term implications and fine print of any payment deferral or forbearance program that you may be offered.
Whatever is happening with your immediate financial situation, the stimulus funds will give you some extra cash on hand. Having this money can help you weigh your options and buy some time.
2. Pay Down Debt
At a time when so many lenders and credit card issuers are offering relief and forbearance to borrowers, it might seem strange to talk about using your stimulus check to pay off debt. But paying down debt also can be a good option for your stimulus cash, depending on your situation and goals.
For example, what if you owe just a few more payments on your car? $1,200 could potentially pay off a few months’ worth of car payments.
What if you have some debt that, for whatever reason, you don’t want to refinance, renegotiate or ask for loan relief for, such as medical debt, student loans or a long-delayed credit card balance? If the $1,200 stimulus check will help you have peace of mind by paying off a debt, go ahead and do that.
Paying off debt is almost never a bad financial move. But think carefully about how to prioritize your debt payments. Even in these uncertain times, it’s usually a good idea to pay off the highest-interest debt first, such as credit card debt.
But don’t feel like you have to be in a hurry to put all your stimulus money toward paying off debt. Look at your options for forbearance or payment deferrals first; many banks are offering relief to borrowers. If you can get some relief on your debts for a few months, you can hold on to that stimulus money and decide how to use it later.
3. Build Your Emergency Savings
If you have no debt (or your debts are manageable) and you don’t have an adequate cash emergency fund in the bank, you may want to put some or all of your stimulus check into an emergency fund. In times of uncertainty, many people feel an extra sense of calm and confidence by having cash in the bank.
If you are married with two children, you could potentially receive $3,400 from this stimulus program ($1,200 per adult and $500 per child). That is a decent chunk of money to add to an emergency savings fund, even if you have to divert some of the money to immediate expenses and bills.
MORE: Stimulus Check Calculator: How Much Will You Receive?
If you don’t have any immediate bills that are in danger of going unpaid, you may want to just put your stimulus check in a high-yield online savings account and let it earn interest for now.
4. Invest for the Future
What if you are already feeling pretty financially stable, even in the midst of this crisis? If you already have an emergency fund of three to six months’ expenses, you have no urgent debts and your job is secure (to whatever extent that is possible in this economy), you may want to use your stimulus check to invest for the future.
Take the example of a married couple with two children, receiving $3,400 in stimulus payments. You could put that money into a few different investment options, depending on your goals:
- Traditional or Roth IRA. Save the money for retirement. You can put it into a traditional IRA (on a tax-deferred basis) or a Roth IRA (the money grows tax free). Check the contribution limits for each type of retirement account; which are dependent upon your age and income.
- Save for college. If you have children and you want to save money for their future college education expenses (or current private school tuition expenses), you can put that stimulus money into a 529 plan. Depending on your state, your 529 contribution might also help you get a deduction on your income for state income tax purposes.
- Open a robo advisor, brokerage or investment account. If you have already maxed out your retirement contributions, or just want to invest some money for shorter-term goals than retirement or college savings, you could put your stimulus check into a cash management account with a robo advisor or investment firm. These accounts let you save, earn interest and invest your cash.
5. Give Some Money Away
What if you’re feeling financially secure, you’re grateful to have a stable job, you can pay your bills and your retirement savings are well underway? Why not devote some or all of your stimulus check to charitable giving?
There are so many great charities all over the U.S. and around the world that are urgently seeking financial support right now. Refer to this article on how to donate during the coronavirus crisis for a list of tax-exempt charities and more details on how to give money to COVID-19 relief.
6. Splurge Smartly
No matter what you do with your stimulus check, hopefully you can set aside some of the money to spend on something fun and good for yourself. Everyone in the world right now, no matter how much money they have, is feeling stress, grief and uncertainty about the future. Spending money on COVID-19 self-care is a healthy response to authentically human needs.
And remember: The government is hoping to boost consumer spending by sending out these stimulus checks. In a way, spending money right now and keeping cash flowing through the coffers of small businesses is a patriotic duty.
For example, you may want to use some of the money to pamper yourself or buy your family some nice takeout dinners from your favorite restaurants; that is, whatever it takes to help stay hopeful, calm and productive. Especially during a crisis, spending money on joyful experiences and quality time can be a wise investment.
Americans are rising to the occasion during the COVID-19 crisis with acts of generosity and community spirit. The coronavirus stimulus checks are part of the government’s response to keep money flowing into the economy and help people pay their bills. Think carefully about how you want to get the most out of your stimulus money. Hopefully this extra influx of cash can help you make some meaningful moves to stay financially stable during uncertain times.
