Within the next few weeks, millions of Americans will begin to receive stimulus payments from the U.S. government to help ward off the negative financial impact of the coronavirus pandemic. For many, it will be tempting to spend the influx of funds, but what’s the best way to ensure stimulus payments stretch the furthest?
The old saying remains true: “cash is king” — even more so during times of crisis, when liquidity is essential.
In personal planning as in business, one should always be prepared for emergencies and rainy days. Rainy day plans for individuals should focus on a course of action if you were to lose your job, become injured, experience a family emergency, or another unforeseen circumstance. The strongest emergency plans are those that are developed and assessed prior to tough times, making sure they will hold up when a crisis strikes.
Of course, rainy day plans are often a low priority, or are put on hold for a time when there is more money to set aside. With the global pandemic now at hand, many are now finding themselves on the verge of a personal financial crisis without a plan to weather the storm. For these individuals, difficult financial decisions must be made. The easiest way to get started is to create a “needs” versus “wants” list. In doing so, you can make sure your federal stimulus dollars stretch the furthest.
First, assess your priorities. Is a Netflix subscription a want, or a need? What about online shopping? Can it wait until you have a more stable income? Consider the fluctuations between what may have once been considered a need and may now fall into the category of a want. Once you’ve done this, negotiate. If you are struggling to make ends meet, have an honest conversation with your landlord or others you’re indebted to. Work out a fee or rent freeze so your resources can be allocated appropriately for the time being. The worst response you could receive is a “no.”
Try not to panic. Remember, the market will eventually return to normal.
One might assume paying off bills with the highest interest rates should be the first priority. However, that may not be the best approach. If your assets are stretched thin, try to pay bills on time, but consider paying only the minimum payment due. In doing so, you can protect your credit score while covering all your basic needs.
Lastly, don’t spend your stimulus dollars if you don’t need to. Liquidity is ideal, and there is no telling what the future will bring. Be wise with available funds and spend them begrudgingly. Stimulus checks are designed to assist people who need liquidity, not just to boost the economy. Identify your needs and wants and develop a plan that will last for the long haul.
Keith Harder is a principal and financial advisor with Rehmann Financial. He serves clients throughout Michigan and is located in the Troy office. He is a regional director for Rehmann Financial and serves on its executive committee.