Federal government set to send millions of adult checks starting this week as part of massive $ 2.2 trillion stimulus bill aimed at supporting an economy reeling from the epidemic coronavirus.
As Americans waited for their money, #stimulusdeposit appeared on social media. Once people receive their stimulus money, they will have a simple and serious question: How should I use it?
“Advisors say they would fill their funds for the rainy days first, pay off their debts, and then invest or give their money prudently. “
The choice can be painfully clear for many who need cash now for their necessities because they have been laid off from cash-strapped businesses. A record number of Americans have filed for unemployment as more than 16 million jobs have disappeared in less than a month.
For those who still have jobs, how should they use their money, especially at a time when up to 37 million jobs could be at risk?
Over 20 financial advisors told MarketWatch how they would use the money and what advice they gave to clients. The advisers said they would fill their funds for the rainy days first, pay off their debts afterwards and – very cautiously – invest. But what about all the others?
Here’s a look at what some advisers said others should do with their stimulus checks.
Emergency fund accounts
“I would immediately put this money into my emergency fund account, which is in a high yield online savings account,” Jovan Johnson, founder and CEO of Piece of Wealth Planning in Atlanta, Georgia. Some online savings accounts may offer annual percentage return up to 1.70%.
A rainy day account should cover three to six months of expenses, Johnson said. It means money for rent, mortgage, and utilities. Average rent was $ 1,468 in February, according to a spokesperson for RENTcafe.com, an online real estate listing site.
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In December, homeowners were paying $ 833 in interest and principal per month at a 30-year rate on a home with a median price of $ 225,723, according to CoreLogic. This figure does not include the varying amount of property taxes that might be added to a monthly bill.
The fund is also expected to set aside between $ 120 and $ 200 for gas per month, $ 400 for groceries for a family of four and $ 1,000 for tires and car expenses, Johnson said. Finally, the fund should also have enough to pay the annual limit on direct health spending, he said.
“If you’re sure you’re not going to be fired anytime soon and don’t have contingency funds, you should put it there and start building it with every paycheck in the future,” said Tara Unverzagt of South Bay Financial Partners. in Torrance, California. “You could be next – be prepared. “
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Spend it (in debt)
If someone is comfortable with the size of their fund for a rainy day, several advisers advise paying off debt, especially credit card debt. Americans owed $ 930 billion in credit card debt in the fourth quarter of 2019, according to the Federal Reserve Bank of New York.
““Paying off credit cards would be a great way to get an immediate guaranteed return. ““
“Paying off credit cards would be a great way to get an immediate guaranteed return,” said Chris Chen of Insight Financial Strategists in Newton, Massachusetts.
However, Chen said he will not be spending it on student debt yet, as he will wait to see what other action lawmakers take regarding student debt relief.
Indeed, after MarketWatch spoke with Chen, the federal government, the lender behind the majority of student loans, said borrowers can suspend payments for six months and is waiving the loan for the time being. the collection of interest on loans.
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When deciding how to pay off debt, Nick Reilly, founder and senior advisor at One Day in Seattle, Wash., Said the focus should be on credit card debt, especially those with higher interest rates. of 8% and more. This mainly consists of credit card debt, he noted. In November, the average annual rate on a credit card was 14.87%, according to Federal Reserve information.
Invest it (with care)
If the emergency funds are topped up first, the debts are paid off, and you have the stomach and the experience, some advisers have said there could be good investment opportunities waiting.
“I would definitely invest it in stocks because I am a long-term investor. Shares are down about 32% from all-time highs and it’s important to slowly start enjoying it, ”wrote Silvia Manent, founder and managing partner of Manent Capital in Boston, in an email to MarketWatch. One method would be to invest small amounts on a weekly, bi-weekly or monthly basis, she said. “We can have more inconvenience from here (no one really knows that) so it’s important to be careful.”
““I would look for an ETF that offers exposure to as many industries as possible.”“
In Encino, Calif., Stephen Rischall, financial adviser at Navalign, said if he got a check he would put it “in good companies that I think are already benefiting, to some extent, from this pandemic – think virtual learning and business cloud infrastructure, e-sports and video games, and grocery stores.
Others said they would not choose stocks.
“I would look for an ETF that offers exposure to as many industries as possible,” said Eric Powell, founder of The Future Mill in Lakeland, Florida. “This provides an opportunity for growth going forward, but also offsets the risk of buying into individual companies that may file for bankruptcy. A good way to spread risk and diversify at low cost is to look for a replicating ETF. an index like the S&P 500 SPX,
Donate it (if you can afford it)
Of course, those who could afford it said they would donate their stimulus money.
“Many hourly workers – retail salespeople, restaurant staff, nail technicians, hairdressers – have seen their incomes disappear virtually overnight, but their financial obligations have not gone away and the stimulus checks will not meet their needs. ‘gap very long, “said Melissa. Brennan, Financial Planner at ARS Private Wealth in Plano, Texas.
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Food banks and other charities will see an increasing demand for their services, she noted. “All nonprofits are going to see demand for their services increase, but their budgets were set before the start of the pandemic. “
“If you have kept your job and have adequate emergency funds, you may want to consider donating a portion of the stimulus check to help those who are not as fortunate as you are. “said Doug Garrison, Senior Wealth Advisor at Investec Wealth. Strategies in Houston, Texas. “Times like this call for compassion and solidarity. ”
This story was updated on April 13, 2020.