President Trump reluctantly signed the spending and stimulus bill, paying out a second round of COVID-19 stimulus checks.
And this check is coming much quicker than the first. Since the system is already in place to send out these checks, it will be a much more efficient process. Well, as efficient as the government is capable of being.
While the president is still trying to increase the amount to $2,000, we’re just going to work with what it is now, because it doesn’t seem likely to change.1 Plus, all of these ideas to spend it wisely apply, whether it’s $600 or $2,000.
Additionally, people originally thought the bill included a lot of foreign aid, because a $1.4 trillion omnibus spending bill was attached to the COVID-19 relief bill. So while there is $1.4 trillion going to foreign aid, it’s not technically part of the stimulus package for the American people.
How Much are You Getting?
The amount is currently set for $600 to each adult and $600 for each dependent child (under age 17). This only includes dependents claimed on your 2019 taxes, so if you had a baby in 2020, congratulations on your beautiful newborn! But they won’t qualify you for the extra $600.
Interestingly enough President Trump and the democrats are on the same side to increase the direct payment to Americans from $600 to $2,000. The House, holding democratic control, just passed the “CASH Act of 2020,” authorizing the increase to $2,000, but it still has to pass the Republicans in the Senate who seem to mostly be against the idea.2 In short, most people don’t think there is going to be an increase from the $600.
There is a chance you’ll get less than $600, just like with the first stimulus check. It all depends on your income…
“Stimulus payment amounts will be phased-out for people at certain income levels. Your check will be gradually reduced to zero if you’re single, married filing a separate tax return, or a qualifying widow(er) with an adjusted gross income (AGI) above $75,000. If you’re married (or a surviving spouse) and file a joint tax return, the amount of your stimulus check will drop if your AGI exceeds $150,000. If you claim the head-of-household filing status on your tax return, your payment will be reduced if your AGI tops $112,500.”Kiplinger
If you’re unemployed, you’ll get a $300 boost (down from $600 in the first round).3
There are exceptions to all of this, of course. If you’re behind on child-support payments, for example, expect that to come out of this check.
Feel free to ask about specific situations in the comments below.
When is Your Check Coming?
Since the system is already in place to send out the checks, it will be in your account quickly, assuming you have direct deposit set up. If you do have it set up, you’ll receive your money by January 15th. That’s the cutout for when the IRS and the US Treasury have to stop sending checks.
If you don’t have the money by January 15th, and you are set up for direct deposit, you’ll need to claim the amount missing on your taxes next year through the Recovery Rebate Credit.
If you don’t do direct deposit, and typically get a paper-check refund, that’s how you’ll get this check. If you’re receiving a paper check, it will likely arrive after the January 15th cutoff. That’s when it has to be sent by, but you’ll still be waiting to receive it. Regardless, it will be faster than the first stimulus check.
That’s enough about government spending, let’s talk about your spending…
How to Spend it Wisely
Regardless of when you get the check, you should be ready to spend it wisely before you get it, and before it disappears into the abyss of your checking account.
Some people need the check right now to catch up on payments and other bills. You may not have the luxury of spending it how you please. But if you do, these are some good options. You’ll have to decide how to spend it, but I hope this guides you in the right direction.
1. Pay Off Debt
Debt would always be first on my list. If you’re in debt, the first step should be to dump the debt as quickly as possible. Whether you receive enough to make a huge impact on your debt, little impact, or pay it off entirely, paying off debt is never a bad option for a lump sum of money.
2. Finish Your Emergency Fund
If you follow Dave Ramsey, you know he suggests putting $1,000 into a savings account immediately, and then starting the Debt Snowball. I agree with him on that. If you’ve already paid off all your debt, except the mortgage, consider using this check to fully fund your emergency fund.
2020 has taught us the importance of an emergency fund. I’ve personally witnessed people losing everything because they didn’t have an emergency fund.
In all of my adult life, I would’ve never expected something like this pandemic to happen. Many people have planned for a lot, but being quarantined, businesses being completely closed for weeks, and the amount of people losing their jobs overnight is not something I saw coming.
The importance of an emergency fund has never been more apparent.
A fully-funded emergency fund should be at least three months of living expenses on a bare-bones budget. Just think of how you would live if you lost your job today. You’d stop eating out, going to the movies, and buying expensive toys. Calculate how much you would need for a month of living like that, and multiply it by the number of months you want in your emergency savings.
This check could fully fund it or at least get you started.
3. Start Your Next-Car Fund
I’m a big fan of car payments… made to yourself… in an interest-bearing account.
Instead of paying interest on a car loan, why not make payments to yourself, earn interest, and pay cash for your next car? It’s possible.
I use Marcus by Goldman Sachs (not an affiliate link) to get a 0.5% interest rate. It was a 1.7% interest rate when I started, but with the federal-rate decrease, it took a hit like all savings accounts did. But the rates will come back. There are plenty of other options for a decent return, but they don’t get much higher than 1.7% for a savings account, at least, not without limitations.
4. Pay Down Your Mortgage
The finance blogging world is full of opinions, and this is a hot topic for those opinions. Many people believe you shouldn’t pay off your home early, because you can earn more in interest by investing than you can save by paying off your home early.
They’re right. Paying off your home early isn’t always the best decision from a mathematical standpoint, but it is from a financial-freedom standpoint. The recent financial markets have shown us how things can go south overnight, and having a paid-off home would be a lot better than the returns we’ve seen lately.
If you hate debt, like I do, consider paying a large payment on your mortgage. Regardless of how much more you could earn by investing, the feeling of a debt-free home is unbeatable. It frees up your cash flow and your mind.
If you don’t want to add an extra payment to your mortgage, or if it’s already paid off (congratulations!), consider using your stimulus check for a home-improvement project that adds value to your home. Focus on kitchen and bathroom projects to get the most bang for your buck.
5. Contribute to Your Retirement
It’s never a bad idea to put money into your retirement.
This check could be a big step towards maxing out an IRA for the year ($6,000 is the current annual limit). If you invest in a 401k, 403b, or TSP (Thrift Savings Plan), you have a lot more room to work with (current limit is almost $20,000).
You may have to increase your allocation through work, and live off the stimulus money, to “add it to your retirement,” but it still works.
6. Start Living a Month Ahead
If you don’t need the stimulus money to make current payments, consider using it for future ones.
This could be the time to stop living paycheck-to-paycheck.
Use the stimulus money to get a month ahead on your bills, and start budgeting a month ahead from here on.
7. Contribute to Your Kid’s College Fund
If you’re not currently contributing to your children’s college, you could start with this check. I always like to ask the question: should you be paying for your children’s college in the first place? But I’ve already dove into that question here.
If you decide you want to help your kids out with college, consider a 529 plan. You have other options too. You may not need to contribute to their college at all, especially with all the scholarships out there, but it’s an idea.
8. Pay Ahead on Car Insurance
Consider paying your car insurance for the rest of the year.
That’s one less payment you have to worry about if you usually pay it monthly.
9. Pay for Christmas Now
If you find yourself struggling to pay for Christmas presents when the time comes, why not pay ahead? It’s only a few days after Christmas, but it’s a great time to start gradually planning for next year.
Set aside the money to pay for the holidays, or start buying presents now, before stores start marking things up for the holidays.4
Or consider taking a new perspective on giving, not buying presents at all, and using your stimulus check elsewhere.
I know this is the minority, but some people actually feel bad for getting this check, because they haven’t been affected at all by the quarantines. If that’s you, or if you’re just doing well financially, consider giving some or all of this money to your church or a charity of your choice.
Related: 20 Charities You Need to Know About
I know, this is laughable to many, but even if you don’t feel like you’re in a position to give, you may be amazed to see the results throughout the year if you do. We’ve had some of the most supernatural results and blessings when we’ve given large amounts of money, especially when we could barely afford to do so. Here’s my story…
You could also consider helping a parent or other family member with bills and debt, if they’ve been hit harder than you during these difficult financial times.
11. Start a Home Business
If you’re debt-free, and your emergency fund is in place, you’re doing pretty good. Better than the vast majority. Consider using your stimulus money to start a side hustle or a home business. Most online side hustles, like blogging for example, take little to no money to get started.
If you sink a couple grand into an online business that doesn’t require much money in the first place, you could get in the game quickly. If you’re still quarantined or working from home when you get the check, you’ll have plenty of time to get the business up and running.
12. Go Back to School
Going back to school is always an option. Whether you’re finishing your associate or bachelor’s degree, or starting a master’s or doctoral program, you likely have some extra time right now.
If you’re in a good financial position, and a degree makes sense for your career path, consider starting or finishing one.
Still stuck at home? Here are 40 ways to use your time wisely.
Worried about the economy right now? Here’s how to stop worrying.
Further Book Reading
- Everett et al. (2020, December 27). Trump backs down, signs stimulus package. Politico.
- R, Mengle. (2020, December 29). Second Stimulus Check Update: House Passes Bill for $2,000 Payments. Kiplinger.
- K, Smith. (2020, December 28). $300 Unemployment Benefits Boost Calculator – Relief Bill Now Signed By Trump. Forbes.
- A, Ohlheiser. (2013, November 26). How Retailers Trick You With Their Amazing Black Friday ‘Discounts’. The Atlantic.