A lot has been written regarding the CARES Act direct payments. Articles addressing payment eligibility, methods of payment delivery and speculation regarding when payments are to be received abound. (Information regarding direct payments can be found here.) For those awaiting payments to hit bank accounts or mailboxes, there’s no time like the present to consider what you will do with the money once it is received.
How one spends depends upon individual circumstances, personal values, and specific goals—precisely the reason personal finance is personal. While there is no one-size-fits-all formula for determining how best to spend, sound money management practices bring consistency and clarity to budgetary planning and spending habits. And thinking about money before it’s in your hands gives you time to plan, plan, plan, and, then, plan some more.
Have you lost employment? Given the closure of non-essential businesses and the paring down of many essential businesses, the sharp increase in Maryland unemployment claims, unfortunately, was expected. For many who have suffered a loss of income, funds should be used to ensure basic living needs are met. Food, housing, utilities and transportation are key areas for spending. While Maryland has taken efforts to assist those facing financial challenges during this time (e.g., executive orders temporarily prohibiting evictions and utility shutoffs), bills likely will need to be paid—whether now or later.
Sometimes there just isn’t enough money to pay all expenses. In that case, contact your landlord or utility provider, explain your situation and ask if they will accept a partial payment or whether assistance is available. Paying what you can now will help lessen the amount owed later, which, in turn, can help with future cash flow. Do you have an emergency fund? If so, this is the time to use it. While some are reluctant to use money that has been diligently saved over time, remember, you saved for this very reason.
Have you—or your household—suffered a reduction in income? Some households are facing a reduction, rather than a total loss, of income. Yes, a partial reduction of income may make it challenging (or impossible) to pay all household bills. But the good news is that some income is continuing. If possible, reduce expenses to live on the new-for-now regular income. If not, use some of the stimulus check to shore up basic living needs. Pay rent, ensure there is food in the pantry, pay utilities, and make sure you are able to get to where you need to go.
If you find yourself with a surplus of funds, consider continuing to make on-time minimum credit card payments. Doing this may help your credit score, which can save you money in the future through favorable interest rates on loans. No debt? This is a great time to add to your emergency fund—place the funds in an easy to access interest bearing account, not to be touched unless faced with significant financial need.
No change in income? For those continuing employment, be it from home or as an essential employee on-site, if you have been living within your means, continue to do so. Direct payments may be used to pay down consumer debt, which will help provide you with more money in your pocket in the long run. But before the funds are spent all in one place, consider building and/or adding to your emergency fund. Personal finance professionals recommend having three to six months of living expenses saved in an easy-to-access account. The suggested amount depends upon income dependability—the more reliable your income, the less you may need to put away in a “life happens” account.
For those who are financially secure (think: secure income stream(s), no consumer debt, well-funded emergency fund), direct payments could be used to assist a family member or friend in need, be donated to a charitable cause (think: local food banks), or brighten the day of health care workers and restaurant owners (buy a few meals for our mission-essential workers or contribute to a restaurant fund).
We’re all in this together.