On March 27, 2020, the U.S. Congress passed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), a $2.2 trillion stimulus package designed to mitigate the effects of the novel coronavirus (“COVID-19”). The legislation includes relief for businesses and individuals, assistance to states, and key protections for workers.
If you are a taxpayer, you will receive a check or direct deposit from the IRS within the next few weeks. The amount of money you receive for your IRS stimulus payment depends on factors like your income, whether or not you are married or head of a household, and how many dependents you have. The idea of the stimulus isn’t to boost the economy, but to aid financially stressed households and keep consumers from falling further behind on bills.
This post discusses what you should do with the funds you receive. Here are the top five things you should do with your money, depending on your personal or family money situation:
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Pay Your Bills
If you are currently out of work and don't have a stash of cash to rely on, use your IRS stimulus payment to pay your rent, utilities, and other bills. Making these payments are essential to maintaining your credit and enabling you to hunker down for as long as the Coronavirus “shelter in place” recommendation remains.
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Emergency Fund
If you do not already have an emergency fund of cash established, use your IRS stimulus payment to create your emergency fund. An emergency fund is a bank account with money set aside to cover large, unexpected expenses. We don't know how long the pandemic will last, so you may need the cash in the near future. If not, you will have the cash on hand in case of another situation. Always keep your emergency fund in an interest-bearing savings account. AXOS Bank offers a savings account with an interest rate of 1.7% as of the writing of this post, and has the most competitive rate I could find.
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Pay Down a Credit Card Balance
Pay down the balance on your highest interest credit card. This will immediately pay you in savings on interest. Most credit cards have rates of 20% and upwards. A payment of $1,000 on a credit card with a rate of 25% will save you $250 in interest payments over the course of a year.
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Invest in Peer-to-Peer Lending
If you're looking for a better return than as savings account, but would like to avoid the stock market for now, Lending Club could be a great option for you. Your cash will be invested over 3 to 5 years with an average return over 5% per year. I've personally used Lending Club to invest money and received a return of around 6.5%. The only caveat is that your funds are tied up for a while. Don't use this investment option if you would like to use or move your funds within the next couple of years.
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Invest in the Stock Market
The stock market has taken a huge hit over the past few months, and there's no guarantee on when it will recover. Be cautious about when to jump into buying stocks. That being said, there are some interesting options out there, such as:
If you are interested in using your IRS stimulus payment to invest in the market, and you don't have a retail brokerage account, I recommend tastyworks.
Tastyworks is a smaller, boutique brokerage owned and operated by some of the smartest people I know, like Tom Sosnoff and Scott Sheridan. These guys have been trading options since the early 80s and are big believers in retail investing. They offer free lessons in trading options at Tastytrade, with countless hours in archives of explaining live trading opportunities. If you are curious about managing your own money in a brokerage account, definitely check them out.
Stocks are at a discounted price right now, but could drop even further in the near future. It depends on what happens over the course of the next two months (April-May 2020), so be cautious.
Conclusion
Use your dollars wisely, and do what makes sense based on your personal money situation. Let's hope this Coronavirus pandemic craziness is over soon, and we can go back to “normal” life. Looking for more financial resources? Try these:
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