It’s been a little less than four weeks since the first stimulus cheque made its way into millions of US bank accounts, however a second is already being discussed and is highly likely to be issued in the coming weeks.
There are three things you could do with the second stimulus cheque depending on your current financial situation and the safety of your career in the current climate. First, be sure that you have a solid emergency fund, second pay down any debt, and finally, invest.
In this post, we’ll discuss how to decide if your emergency fund is enough in the given climate, why you should still pay off debt despite low-interest rates, and things to consider prior to investing in your long term future if you’re at that stage.
Is There Going To Be A Second Stimulus Cheque?
As of writing this post the US Government has not publicly agreed or stated that there will be a second stimulus cheque.
However, there have been a lot of rumors and many economists think that it’s almost a given that sometime in the next couple of weeks a second package will be announced.
Many news outlets are reporting that the second stimulus package will simply be a repeat of the first, in which those eligible will receive $1,200 each with a cap of $6,000 per household.
However, some believe it could be modified to include the additional income for those with dependents under the age of 17.
The exact amount isn’t much of a focal point in this article. Instead, it’s more about what you do with the money to financially protect you and your family as we move into this uncertain climate.
What To Do With The Second Stimulus Cheque
Depending on your current financial situation I would suggest doing one of the three following things with your stimulus cheque; start or top up your emergency fund, pay down debt or invest.
I wrote these out originally and then looked back only to realize they are a basic version of Dave Ramsey’s Baby Steps which I have adapted based on the current circumstances.
Start Or Top Up Your Emergency Fund
I often get asked ‘what’s a suitable emergency fund?’ and honestly, the answer is different for everyone.
Dave Ramsey suggests starting with $1,000 and then moving to 3 months’ expenses and then 6 months’ expenses.
However, these are very uncertain times which is why I would urge everyone to aim for at least a 6 months emergency fund at this point.
I’d even suggest pushing this up to 12 months if you work in the travel, entertainment or leisure industries which are being hit hardest by our current situation.
If you have no idea how much you spend on essential expenses every month then you’ll need a budget – I suggest YNAB (which is an abbreviation for You Need A Budget). Be sure to include the minimum repayments on your debt as well as the cost of gas, electricity, etc.
My wife and I have paid off our home and have no debt which has brought our essential expenses down to just over $500 a month for the two of us – we live a very frugal life, hence the title of this blog.
This means our emergency fund should be at least $3,000 ($500 x 6). Don’t be alarmed if yours is significantly higher, I have friends who have more than $10,000 in an emergency fund.
If you don’t have a six-month emergency fund in an easily accessible account then I’d suggest that you use your stimulus cheque to help fund this.
It’s unlikely the $1,200 cheque is going to be enough for you to fully fund your emergency fund so be sure to sit down as a family and work out other sacrifices you’re going to make moving forward to make this a reality.
There’s no doubt that a fully-funded emergency fund is going to provide you with some peace of mind in these uncertain times.
Pay Down Debt To Minimise Your Exposure
If you have a fully-funded emergency fund then I’d suggest using your stimulus cheque to pay down debt and therefore reduce your monthly expenses.
However, if you have a job that you believe is going to be negatively impacted by the current circumstances I’d suggest topping up that emergency fund even further.
Using your $1,200 stimulus cheque towards debt could completely wipe out one (or more) debts all together if you’re following the snowball method.
Some people may argue against this given the ultra-low interest rates likely to occur due to the economic climate however, I think this is negligible given the amount of financial security and peace of mind being debt-free brings.
Much like the emergency fund, these are uncertain times and I would suggest sitting down with your family and financial advisor if you have one and discussing the cutbacks you can make in your budget to reduce your debt substantially, therefore, putting you in a better position moving forward.
Invest In The Economy & Your Financial Future
The majority of investors believe stocks are on sale right now, and they aren’t wrong!
If you have a fully-funded emergency fund, are happy that your job is secure despite the economic climate and have zero debt then you may choose to reinvest your stimulus money back into the economy via stocks, bonds, index funds, etc.
However, as with any investment (and maybe now given the climate more than ever), thorough research is required.
You should sit down with a licensed financial advisor to discuss your options, create a diversified portfolio, and aim to invest in the long term to put you and your family in better position years from now.
Investing for the long term is going to provide you with the best financial projection, however, it’s also why investing is last on our list and why you should ensure you have a fully-funded emergency fund and zero debt before doing so.