This week stands to be a big week for the United States, as we expect to see Joe Biden inaugurated as the 46th President of the United States. While there will be countless articles written about the anticipated shift in policy of a Biden administration, we don’t have to wonder where President Biden stands on more direct payments. He wants them, and he wants them quickly.
I expect that the stimulus bill the Democrats wish to pass will be almost identical to the 3T bill that Speaker Pelosi pushed in late 2020. Since Congress was able to pass a 900B emergency stimulus in December 2020, my belief is that the next bill will seek to make up the difference. Unfortunately, like most things with Congress, it won’t be that simple. We should expect to see turbulence, as there is another wrinkle being added– increasing the minimum wage to $15/hour.
While I do believe there is a debate to be had about minimum wage, I don’t think it belongs in an economic relief package. This detail is important because Biden has mentioned that he wishes to pass the stimulus package straight up—with no special legislative tactics. Passing a bill that is full of unrelated legislation may prove difficult, especially if the Senate is also expected to be divided over impeachment. Thus, it may take some time for these new stimulus checks to materialize.
Now that we have some background out of the way, I’ll tell you that I do expect more direct payments. I think you should begin asking, “How should you spend your stimulus check?”
At the time of this writing, they have not released actual text of any bill. Once they release the bill, financial advisors all over the country will be looking to determine the formulas used to calculate the payments. I expect they will attempt to use the same formula as they used in 2020.
I have many thoughts about what people can do with their stimulus payments, yet I cannot offer true financial advice without knowing your personal situation. Instead, I’ll offer some of my ideas to see if any of them resonate with you and your financial goals:
Cover the basics. If you need to use these funds to get current on your utility bills, rent/mortgage payments, or stock your pantry. Please do that. It can be tempting to float payments when receiving a financial windfall. Don’t listen to those temptations.
Pay off Credit Card Debt. These checks offer many people an opportunity to look at their balance sheet and make improvements. While we’ve watched interest rates plummet during this crisis, credit card interest remains extraordinarily high. If you have the ability to pay off high interest credit cards, I recommend you highly consider it.
Build Your Savings. Some households may have been forced to lean on their savings in 2020. More stimulus payments may offer you an opportunity to pad or rebuild your savings accounts. A good rule of thumb is 3-6 months of your essential expenses in savings. Take an inventory of your current savings, and if necessary, use these funds to rebuild or grow those cash reserves. Remember– we are not done with this pandemic yet.
These 3 steps fall into a category I refer to as Fundamental Finance. They may feel like basics, but part of becoming financially savvy is mastering the basics and understanding how to direct money where it needs to go. If you are able to pass through these steps, let’s take a look at some other ideas:
Spend It. That’s right… you can consider spending your stimulus money. Why spend it? Wouldn’t that be irresponsible? I don’t believe that. Part of the reason our government is providing payments to citizens is to help generate consumer demand. During periods of high economic uncertainty or recession, millions of people decide not to spend but to save. This pulls dollars out of circulation and places them on the sideline in cash. The ripple effects run through the economy and often cause more economic pain. These stimulus checks are the government’s way of providing some households with funds to use as needed–which includes spending them.
If you do decide to spend them, I would highly encourage you to consider spending them in your local community. Small business owners have been hit extremely hard by the pandemic, and many of them are struggling to keep their doors open. If you spend your dollars locally, they get fed into your local economy instead of a large corporation. Look for those local restaurants, boutiques, and service providers. Walmart and Target will endure, so let’s support our local communities.
Invest It. This will probably be one of the most popular options for people that feel they are behind on their retirement planning. If you do intend to make an investment, I encourage you to seek investment help from a financial advisor. Look for a CERTIFIED FINANCIAL PLANNER™ professional that can assess your situation and give you personalized advice.
There are many paths that you can take, especially if you already have 401k, IRA, or ROTH IRA accounts. Working with someone that can help you evaluate your investment choices or objectively look at your planning for retirement may be a huge benefit. Consider the long-term impact a financial advisor can have your financial success.
One of the most frustrating answers to any financial question is “It Depends.” It’s very difficult for financial planners to know the status of your investments, your progress with retirement income planning, or your long-term financial goals without asking questions to get to know you. Many people avoid financial professionals because they worry about costs or being sold expensive financial products. In some cases, these concerns may be valid. However, there are tons of fantastic advisors in this profession who hold themselves to a fiduciary standard. I encourage you to seek out a planner that can help you create an investment policy that can help you for years to come.
Be Generous. This pandemic has been brutal for all of us, but many families have had different financial experiences. Some households have struggled to make ends meet, while other families have been fortunate to remain financially stable. If you find yourself in a place where you have the ability to be generous with your extra stimulus dollars, I highly encourage it. Local charities and churches have likely seen giving shrink during this crisis. Offer to help them.
In addition there may be families that you know who could use some assistance. Reach out and see how you can help. This is an incredible opportunity for all of us who are able to be generous and love our neighbors.
Consider Your Kids. I saved this for last because it’s likely to raise the most eyebrows. There will be millions of families that receive additional stimulus money because they have dependent children. I highly encourage you to take this opportunity share some of the funds with your kids as way to teach them financial literacy. So many of our beliefs and feelings about money are formed during our childhood.
Take this moment and make it a teachable moment. Consider an amount to give your child and ask them questions:
What would they like to do with it?
What makes them feel that way?
What do they think would be a wise financial move?
You might be amazed at what you learn about your child. Resist the urge to tell them what they should do. We want our children to learn, and part of learning is making mistakes. I’d much rather our kids make money mistakes when the stakes are small because the consequences are also small. This may be a wonderful time to let them spread their financial wings for just a moment.
I’ve tried to pour out my thoughts on stimulus checks. By no means is this an exhaustive list, but I do hope that it’s enough to make you think through your options. The most important thing to me is that we not take the money for granted. This isn’t grandma’s Christmas money—it’s money being given to help families shore up their balance sheets, pay bills, and stimulate the economy. Let’s make the most of this opportunity.