How should I spend my stimulus cash?

Back in the day, when your father or mother would give you a dollar, they might offer this cautionary advice: “Don’t spend it all at once,” or “don’t spend it all in one place.”

Well, that certainly can be applied to the stimulus payments the government has promised millions of Americans due to the harsh economic times created by the coronavirus pandemic. The Treasury Department and the Internal Revenue Service announced that the payments will begin in mid-April and will be distributed automatically, with no action required for most people.

The IRS is using 2019 tax returns to determine eligibility or 2018 returns for those who haven't filed for 2019 yet. Some taxpayers who typically do not file returns will need to submit a simple tax return to receive the economic impact payment.  If you’re on Social Security, the government will use the information from your Social Security forms to determine how much you qualify for and where to send your payment. You don’t need to take any action.

Single adults who have an adjusted gross income of $75,000 or less will get $1,200, while married couples with no children and earning $150,000 or less will receive a total of $2,400. For every qualifying child age 16 or under, you will get an additional $500. There is no minimum income needed to qualify for a check.

If you’re looking forward to this money, now is the time to think about how you are going to use it.

One problem for many people is the uncertainty. How long will this pandemic last? What will happen with my job and income?

The dramatic economic decline prompted by the coronavirus has made it difficult to make ends meet. Nearly 10 million Americans filed for unemployment in the last two weeks of March, according to the U.S. Dept. of Labor.

And the $1,200 stimulus? That won’t cover monthly rent in many parts of the country.

“People are feeling like they’ve lost everything,” said Allie Fleder, chief operating officer at the SimplyWise retirement website.

Financial experts all over the internet offer suggestions on how you should spend your stimulus money.

“Try to focus on the next four to six weeks and budget for your essential expenses,” certified financial planner Matt Canine, a senior wealth advisor at the East Paces Group in Atlanta, told CNBC.

After taking care of your immediate needs (that’s needs, not wants), the New York Times consumer spending website Wirecutter came up with four basic suggestions on what you could do with your excess funds.

1. Build up your emergency fund by boosting your savings account. Most experts agree that having three to six months’ worth of expenses in cash is a good rule of thumb.
2. Pay down high-interest debt. Assuming you are happy with your current emergency fund (and that’s a personal decision), use what’s left to reduce as much debt as you can. Paying off debt now has a clear long-term return. The more you pay off now means the more you save in interest that you’d otherwise have paid to your lender.
3. Spend it at local businesses you don’t want to see close. If your favorite local business is already shuttered, see if you can order merchandise online. And if you can, continue paying those people whose services you used routinely before the pandemic, such as your house or pool cleaner, personal trainer, hairdresser, etc.
4. Donate to charity. Tons of organizations need help right now, including nonprofits that support seniors, provide services for low-income communities and address hunger, housing, the arts or the environment. Charity Navigator has a list of nonprofits specifically responding to the COVID-19 crisis.

“People are realizing how important that emergency fund is,” said Kelly Campbell, a CFP and CEO of Campbell Wealth Management in Alexandria, Va., “especially people being laid off. It happened quickly, and people were blindsided.”

“People should step back and reassess everything,” said David Flores Wilson, a CFP in New York and founder of the personal finance site Planning to Wealth. “The potential for long-term change is profound, not just in our everyday lives, but our financial lives for years to come.”

The financial distress could be severe, so start by evaluating your income potential and job stability. If you have emergency cash, estimate how many weeks or months of expenses it might cover.

“If you’re paying monthly for some software, maybe it makes sense to go from the premium to the free version for a couple of months,” Wilson said, “even if you don’t feel your job is at risk.”

The instinct to spend this money is probably wrong, Wilson says. Run through different scenarios and work out your solutions for each. If the quarantine lasts two months, how does that affect you? What if you are without income for six months?

“Work backward,” Wilson said. “The last question to answer is, what should you spend this money on?”

What you do with the money, or course, is a personal decision, but you should be pragmatic in your approach. What you should not do, however is more clear-cut. Don’t give to grifters, scammers or con men, and there are plenty out there ready to pounce. 

Remember these basic precepts and hold on to your wallet.

• Government agencies, including the IRS, do not initiate conversations with you via the telephone, email or text. If someone calls asking for personal information of any type, claiming to be from the IRS, don’t give it to them.
• If you receive an email message or text claiming to be from the IRS and asking for your account details, don’t provide it. Don’t click on links or attachments in any email message or text that claim to be from the IRS.
• The payment will be sent via the U.S. Postal Service or by direct deposit into your banking account, if they have the information on file from your tax filing. They will not ask you to provide it over the phone, in an email or in a text message.
• If you didn’t file a tax return for 2018 or won’t for 2019, there is a way to get your stimulus check, if you qualify. Go directly to the IRS website to find out how to do that. Don’t listen to someone who calls you first claiming they can help.

For more factual information about the stimulus, read the IRS news release Economic impact payments: What you need to know.

The Federal Trade Commission offers tips to avoid scams while finding help during quarantine.