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Updated on Thursday, April 16, 2020
As the coronavirus pandemic plunges the economy into a fragile state, the U.S. federal government is throwing taxpayers a lifeline in the form of stimulus checks. The payments are designed to provide some much-needed relief to those affected by the economic fallout.
However, many consumers face competing financial needs, and prioritizing money moves can be a difficult and debilitating task. Here’s how experts recommend you spend your stimulus check, and which financial needs to prioritize over others.
What to do with your coronavirus stimulus check
If you’re one of the millions of taxpayers across the U.S. awaiting the arrival of a stimulus check in the coming weeks, you’re probably plotting exactly what you’re going to do with those funds. Here are four smart ways you can spend the money that’s part of the government’s coronavirus relief response.
1. Pay your bills
Many consumers will likely need to use their stimulus checks for exactly what they were designed for — keeping the lights on. In fact, a recent survey from MagnifyMoney revealed that the majority of Americans are going to spend their relief check on essentials, with 45% planning to spend it on groceries and 43% to pay bills.
Indeed, experts agree that your top priority should be making ends meet. “For many, this will be about keeping the lights on or putting food on the table. That’s why these checks are so, so important,” said Matt Schulz, the chief credit analyst at LendingTree.
As the coronavirus pandemic remains a threat, many businesses have been forced to either close temporarily or shutter completely, which has left many workers furloughed or laid off. The labor department recently reported that nearly 17 million people have sought unemployment benefits in recent weeks. Those numbers indicate that many people will, in fact, need to use their relief check to cover essentials, like food and housing.
“Unless your lender lets you defer a payment, your primary goal is to make at least the minimum payment on all of your bills,” Schulz added.
2. Save it
If you still have a steady stream of income or the resources needed to cover your everyday living expenses amid the pandemic, experts recommend stashing your relief check in a liquid, emergency savings fund, perhaps in a high-yield savings account.
Even in less turbulent times, it’s often recommended that you have an emergency savings fund with enough money to cover between three to nine months’ worth of living expenses. Emergency funds are meant only to be used for actual emergencies, such as making ends meet if you’ve lost your job or need to pay an unexpected medical bill. Having a healthy emergency fund is more important than ever now, as the future state of the economy looks increasingly fragile.
“If you’re planning to focus on knocking down debt, your best move may be to put some of that stimulus check toward an emergency fund in order to break the cycle of debt that so many people find themselves in,” said Schulz. “It’s obviously great to pay down debt, but far too often, people pay off debt and have no savings at all.”
If you don’t set aside some money, you could end up in a position where you’re forced to put your next unexpected expense on your credit card, which could push you right back into debt. “Having even a little bit of cash in savings can help avoid that situation,” Schulz added.
3. Pay off high-interest debt
If you find yourself in the camp of having the resources to pay all of your bills while also having a healthy emergency fund, a smart use of your stimulus check is paying off high-interest debt, such as credit card debt.
“When you’re in debt, job No. 1 is to pay that debt off as quickly and cheaply as possible,” Schulz said. “Focusing on your high-interest debt is the best way to do that because it minimizes the amount of interest you’ll pay over the life of the balance. Once you’ve paid down that credit card debt, you can focus on other lower-interest debt, such as personal loans and student loans.”
Daniel Trumbower, a senior wealth advisor, echoes that sentiment, noting that paying down high-interest debt is a good use of the relief check if your other financial needs are met. He notes, though, that lower-interest debt – like a mortgage or an auto loan – should not be as much of a concern, as long as your total debt remains under 30% of your take-home pay. That’s because those types of long-term debt will eventually become an equity or asset.
“High-interest debt compounds quickly, and can threaten your financial stability,” Trumbower said. “Consider putting the cash toward paying down your debt and putting yourself on a more stable path.”
4. Give back
Both financial experts said that while having enough money for your own living expenses should be your top priority, another smart use for your relief check is to give back to the businesses and people in your life that you know are struggling to get by, as the pandemic continues to batter the economy.
“Order takeout from your favorite local restaurant. Buy something from a friend’s small business. Give to your favorite nonprofit,” said Schulz. “The little bit that you spend in this way may not matter much to you, but it can mean everything to these businesses.”
Trumbower also notes that if you have a family member or close friend struggling financially, some extra money could go a long way. Still, it’s essential to make sure you take care of your own financial needs, too.
“Make sure to put on your own oxygen mask first,” Trumbower said. “Make sure your own financial position is stable during this crisis, so you can come out the other side strong and able to provide financial support to others.”
How much are the stimulus checks?
A key part of making a plan for how to spend your stimulus check is knowing how much money you can expect to receive. The relief checks issued by the federal government differ in amount based on your adjusted gross income and the number of children you have, with that information coming from 2019 or 2018 tax returns, or 1099 forms for Social Security recipients.
For the most part, the checks are $1,200 per adult or $2,400 for couples filing joint returns, plus an additional $500 per child under the age of 17. The checks start shrinking in size for those with higher incomes, beginning at $75,000 for individuals, $112,500 for heads of households and $150,000 for couples who filed joint returns.
However, those with higher adjustable gross incomes won’t qualify for a stimulus check at all. Those who are not eligible include individuals with no children who earn $99,000 or more, as well as married couples with no children making at least $198,000.