Show Me the Money

Submitted by Guy Williams on April 7, 2021

A new COVID relief package of $1.9 trillion was passed by Congress and signed by President Biden on March 11, 2021. The big takeaway for most is that individuals who make less than $75,000 will receive checks for $1,400.

This relief payment is certainly nice, but I do wonder how much you might have received if all the money went to individuals rather than going to schools, pension plans and government entities.

If the entire relief package of $1.9 trillion went to individuals then every man, woman, and child in America would have received $5,757 or $23,030 for a family of four. I did not get to vote on this, yet if I had, I would have voted to send all the money to individuals to stimulate the economy as it was intended to do.

Since Congress decided to spend most of the stimulus money elsewhere instead of sending it to individuals to spend, what is the best thing you can do with your stimulus check?

My first recommendation is to set up an emergency fund. According to a recent survey by statista.com, 69% of all Americans have less than $1,000 in savings and 34% have nothing in savings. If you are in either group, I recommend that you put the entire $1,400 in savings. After all, this is “found” money that you did not previously have, and you are unlikely to get an additional check from the government.

An emergency fund can be a lifesaver if the unexpected happens such as your car needing repairs, an unexpected expense arises, or you lose your income. Most experts recommend building a savings account that contains a total of six months of normal expenses. This stimulus check may also give you a great chance to start or top off your savings account.

Once your emergency savings account is funded, I recommend you pay off debt. I know you are thinking, of course a banker recommends repaying debt. However, eliminating consumer debt is also good for your mental and physical health. I suggest that you start with the loan or account with the smallest balance. As soon as your smallest loan is repaid, apply that payment to your next smallest loan. By following this strategy, you will get the satisfaction of eliminating debt and accelerating repayment on your other loans. For fans of the financial planner Dave Ramsey, this is what he calls the debt repayment snowball.

Life is meant to be lived, and I am not suggesting you live as a monk, but I highly recommend you put all of your effort into building an emergency fund. If your emergency fund is adequate, I suggest a balanced approach of 1/3, 1/3, 1/3. When using this approach, any windfall you may experience is divided into thirds. So, one third of the stimulus check would go reducing debt, one third to savings and one third to spending. This allows for the fun of doing some spending but devotes most of your financial windfall to long-term prosperity.

Take advantage of this federal windfall to improve your financial situation. In future columns, I will write about financial tactics to survive the expected inflation and higher taxes that usually follow big government spending programs.