What To Do If You Received Stimulus Funds

A couple weeks ago, President Joe Biden’s massive $1.9 trillion stimulus package was signed into law, providing much-needed financial relief for many Americans. This bill, popularly referred to as the stimulus package, is called the American Rescue Plan Act, and includes measures ranging from stimulus checks to child tax credits, unemployment benefits, vaccine appropriated funds, healthcare subsidies, even restaurant aid. 

What does this mean to you? This legislation includes $1,400 checks for eligible tax paying individuals making less than $75,000 a year, $150,000 for married couples before phasing down, capped at $80,000 if you’re single, $160,000 if married. In addition, $1,400 is paid out per dependent of eligible taxpayers.

If this is a lifeline to making ends meet, there’s an obvious use of the money, easing things a bit for those who are cash-strapped as a result of the pandemic causing financial and health mayhem to millions throughout the world. For those who see this as a small windfall, $1,400 may not be a long-term solution but you do have some options. What should you do with funds? Well, for starters, this recovery rebate, the term used in the bill, falls under a section titled promoting economic security. 

Here’s a list of things to consider with you and your family’s stimulus money:

• If you’ve already spent that money, go ahead and stop reading… I’m kidding. I suppose in this case you’ve promoted the economic security of others, that is, if you’ve spent this money on goods and services. Or if you’ve spent the money on things you need, your own security.
• Emergencies, pay bills, or pay off debt - If you have an immediate need for the money – repair your car, fix your HVAC unit, pay off credit card debt, pay off a hospital bill, or pay for anything that may keep you up at night, consider taking the burden off your shoulders with this money. Obviously, this goes without saying.
• Save it - If you have no immediate need for the money, you can simply save it. It’s been deposited in your bank account. You can leave it there for a rainy day.
• Work into your budget - Among all the different budgeting rules to follow, I like the 50/30/20 rule. That is, use 50% of the funds for household and essential needs, enjoy life with 30% of it, and set the remaining 20% into savings.
• College savings - If you received $1,400 per dependent, this may be good for college fund contributions.
• Medical needs - Do you have an upcoming simple medical procedure that maybe you didn’t expect? Your stimulus could be used for this. Also, if you didn’t budget for this and have a flex or health savings account through your employer, it may be a good idea to fund those accounts with increased payroll deductions for a month or two so you get the tax deduction of those contributions and tax-free benefits when used for qualified medical expenses. You simply would make up for the lower paychecks with the stimulus money sitting in your bank account.
• Invest in yourself - You could start a business or if you’re already in business, use it as support funds, with this money. Sure, $1,400 doesn’t sound like a lot of money when it comes to starting a business but if you’re in the gig economy where you freelance your work, this stimulus money could be used to promote you and your hustle, say if you do consulting or coaching work. Businesses where the work is done solely on your knowledge and delivering advice or services don’t always require as much startup capital as opposed to opening a business that requires employees and inventory. If you’re already in business, online ads via social media can help you gain a new client or two or promote foot traffic to your business. Heck, this stimulus money can be used to take prospective clients and customers to lunch and you may very well convert them to do business with you. Interested in selling real estate? Use this money for study materials so you can pass the exam. The ideas when it comes to investing in yourself are endless.
• Invest this money - If you think about the time value of money and compound interest, $1,400 invested earning 8% a year over the next 30 years grows tenfold.
• Traditional and/or Roth IRA contributions - IRA and Roth IRA contributions max out at $6,000/year, $7,000/year if you’re over age 50. Did you maximum fund your IRA or Roth IRA contributions for 2020? Will your monthly contributions for 2021 have you fall short of the max? Well, you have until Thursday, May 17th* to fund IRA contributions for your 2020 tax return or you can use your stimulus money for this year’s contributions. Going back to my previous point about investing the money, using an IRA gives you tax-deferred benefits and the Roth IRA adds a tax-free element.
• Increase employer retirement plan savings - If you planned on just letting this money sit in your bank account and you’re already sitting on a healthy amount of emergency funds, consider increasing your retirement plan contributions through your employer. Figure whatever $1,400 or whatever amount you want to use as a percentage of your salary and increase your retirement plan contributions by that percentage.
• Purchase life insurance - This point mainly applies to young single people who otherwise wouldn’t think they need life insurance. Perhaps this stimulus money can help you secure an inexpensive term life policy so you can secure your health rating. A very healthy 30 year old male can get a $500,000 10 year term life policy for around $160/year while a very healthy female at the same age could do the same for around $140/year. If you plan to get married soon or start a family, getting this insurability with a carrier that allows you to convert your term policy into a permanent one down the road could be a very smart thing for you and protecting your family. If you don’t have a life insurance policy and your family depends on you, consider having one now.
• Other options – pay down your mortgage, do some home improvements, spruce up your living space, donate the money to charity… The list can go on.
• Spend it - Lastly, you really could just spend the money. Many people are getting vaccinations. The world feels to be opening up and people are getting out with lots of excitement. Plan a trip. Go on vacation. Spend this money in your local economy. I’m sure the small business owner up the street from you would appreciate the support, too.

If stimulus money is on its way or is already in your bank account, there are several options when it comes to putting it to work for you.

*The IRS announced that it's extending the tax deadline to May 17 instead of the normal April 15 deadline and has advised further more details to come on having an extra month to max out your IRA contributions for 2020.

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Xerxes L. Nabong is a CERTIFIED FINANCIAL PLANNER? and Financial Advisor with Wealth Avenue? and podcast host with The Money Maps Podcast With Xerxes. He can be reached at following: (757) 394-3486, (480) 687-9339, or [email protected].

Xerxes L. Nabong is a Registered Representative offering securities through United Planners Financial Services of America - member FINRA & SIPC. Wealth Avenue? and United Planners are not affiliated.