Stimulus Check: Should we go on a spending spree or pursue our financial goals?

Many people have started to receive their Stimulus Check from the IRS. Some of them are wondering how to use the check wisely. I found a good article giving some tips. It gives some good advice, but I would approach it in a different order.

Here’s the link for the article:

https://www.forbes.com/sites/gracelwilliams/2020/04/25/ask-an-expert-what-can-i-do-with-a-financial-windfall/#606e368c92f0

First, I would set up a “Starter Emergency Fund”. This should be in a savings or checking account. I would aim to have $1,000 to $3,000 in this account as a starting point. This will help cover a lot of short term emergencies, such as replacing a flat tire or replacing some small appliances at the house. I’ll discuss a fully funded Emergency Fund soon.

Next, I would pay off debt. The easiest debt to pay off with the stimulus check is credit card debt. In some cases, the entire balance may be able to be paid off with the stimulus check. I would list all of the debt smallest to biggest (except the house) and start paying them off in that order. This will help create momentum. You will get a confidence boost when you pay off the first one. Plus, once the first one is paid off, you will have more money to pay off the next debt.

Once all of the debt except for the house is paid off, I would work toward getting a fully funded Emergency fund of 3-6 months of expenses. If your income is commission based or if it varies a lot, I would build it up to 6 months. If you live in a single income household, I would probably lean closer to a 6 month Emergency Fund.

Once you get a fully funded Emergency Fund, I would encourage you to start investing. I would start with a 401k, IRA, or another type of Retirement account. I would recommend working your way up to investing 15% of your gross income to retirement. This may take some time, but it’s perfectly ok. The sooner you start contributing to a retirement account, the better chances you will have to retire comfortably. You can also invest in mutual funds, real estate, EFTs, and other types of investments.

I would also look into finding ways to pay off the mortgage early. Usually, I see people pay a little more than the minimum payment. If you have children, I would also look into setting aside money into college savings accounts. This could be in a custodial/guarding savings account, 529 plan, or other options.

You can also use some of the check to live generously. Many people that are in the food/service industry, small business owners/employees, and hourly employees have had losses of income. We can provide larger tips, purchase gift cards, or donate some money to help these employees make ends meet.

If you have any questions or comments, please reach out by sending an email to patton.financialcoaching@gmail.com or go to www.pattonfinancialcoaching.com