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By: Nick Bohlen

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2020-04-21

Five Ways to Spend Your Stimulus Payment Wisely

On April 15, some of you may have received your COVID-19 economic impact payment, otherwise known as your stimulus payment, from the federal government.* Instead of wondering, “When will I get my payment?” suddenly it’s, “What should I do with it?”

 

As tempting as it is to spend the extra income on something fun, it’s important to step back from the Amazon cart and consider your overall financial health. So, aside from perhaps a small purchase that provides some much-needed levity and luxury, how should you spend your stimulus payment? 

 

Think of these areas as tiers, stacked like a pyramid – the Stimulus Spending Pyramid. It begins with your most immediate needs and moves upwards towards longer-term financial planning, each tier building on the one before. Start from the base and work your way towards the top, as your financial situation allows. Let’s get into each in more detail.

 

Pyramid_Scheme_v4

 

1. Essentials

Unfortunately, many people around Vermont and the country have been laid off, are on furlough, or are worried about their job and income security. If you’re unsure where or when your next paycheck could be coming from and don’t have much in savings, take care of your essential needs before worrying about any longer-term financial planning.

 

Use it to pay rent or mortgage. Buy groceries for the week. Cover your utility and medical bills. And if you are an essential employee commuting to work, fill your gas tank. Housing, food, medicine, and bills come first.

 

2. Debt

This unexpected source of income during these uncertain times could be an opportunity to pay off some of your debt, starting with your highest-interest debt. If your paycheck is covering the essentials, your stimulus payment can provide relief from your credit card, auto loan, or other debts and the stress they bring. What’s the price for peace of mind?

 

That said, it’s worth looking into your options. You don’t want to spend your government check on debt if it means you’ll risk missing a payment down the road. If you are worried about making monthly payments moving forward, contact your lender to discuss your financial situation and alternative payment plans. With so many people suffering from financial hardship and uncertainty, many lenders are willing to work with their customers to find a solution.

 

This could include forbearance, loan modification, and other forms of deferment. Just be mindful of how these options differ. For example, while both still accrue interest over that deferral period, with forbearance, you will have to pay all your skipped payments in one lump sum; with a loan modification, your payments will be spread out over a longer period of time, which will increase your overall interest costs. Work with your lender to find the best option for you and, as always, be sure to negotiate the terms and read the fine print!

 


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3. Savings

If you have the essentials, don’t have any outstanding debt, and are still working, you may decide to build your savings.

 

Add to your emergency fund, which ideally covers your monthly costs for three to six months in the event of any financial surprises. This could include a sudden change in income, such as unemployment, or unexpected expenses, from medical emergencies to home or car repairs. A strong emergency fund is especially important during these uncertain times, when even those who are currently employed may be faced with financial surprises.

 

You can also prepare for future expenses you’ve wanted to plan for. Whether you’re hoping to buy a new car (for when we can go places again), renovate your kitchen, or build your nest egg, your economic impact payment can be a good start.

 

4. Investments

If you feel fully prepared for the immediate and near future, you can start thinking long-term. Invest in your retirement fund or in the stock market. Speak with your financial advisor to find out what kinds of investments will be best for you right now. By investing, this money can go to work for you and grow for the future.

 

5. Giving back

Many are struggling during these difficult times, with the economy lagging, stay-at-home orders extended, and businesses trying to stay open. If you’re financially stable, let your stimulus payment live up to its name and stimulate the economy by spending money in your community.

 

Order delivery or curbside takeout from your neighborhood restaurant. Leave generous tips for chefs, delivery drivers, and baristas. Treat your future self, or someone else, with a gift card to your favorite local store. Support the farmer up the road by subscribing to a CSA. Or donate to the non-profit sector or the COVID relief efforts. Your local businesses all need your support now more than ever.

 

Research shows that giving back boosts your own happiness, giving yourself a sense of purpose and lowering your stress levels, among other benefits. It allows us to practice self-care while helping others—a win-win we could all use these days.

 

In conclusion

No matter where you find yourself in the Stimulus Spending Pyramid, the COVID-19 economic impact payment is a one-time opportunity to provide some financial relief in an area of need, for yourself or others.

 

Spend wisely.

 

*If you haven’t received your stimulus check yet, don’t worry! Visit the Get My Payment portal on IRS.gov to check its status. Other questions about how much you should receive, how to get direct deposit, and what information out there is accurate? Here’s everything you need to know about your COVID-19 relief, and the internet myths you shouldn’t believe. The silver lining? Now you have a head start on planning what you want to do with it.

 

The views and opinions expressed in this blog are those of the authors and do not necessarily reflect those of VSECU.

About Nick Bohlen

Nick Bohlen is a communications specialist at VSECU, distilling and sharing ideas and information with staff, members, and Vermonters. When he’s not writing, he enjoys reading, traveling, and exploring Vermont’s great outdoors with his wife and dog.

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