4 Financial Tips to Maximize Your Stimulus Check

by John M. Thornton, CPA, Ph.D.

On March 27, 2020, President Trump signed into law a $2.2 trillion stimulus package to rescue the U.S. economy. The package includes $1,200 for individuals and $2,400 for couples and an additional $500 for families with dependents 16 years old and younger, for everyone who earns less than a certain amount of adjusted gross income ($75,000 for individuals; $150,000 for couples).

Two significant factors drove this financial rescue package: In the last few weeks, 25% of Americans lost their jobs due to the coronavirus pandemic. Additionally, nearly half of Americans are not prepared to handle an unexpected $400 bill without borrowing money or selling something. One thing is clear: We aren’t doing nearly as well financially as we look.

With this in mind, here are four things you should do before you spend your COVID-19 stimulus check.

1. Take Stock of Your Personal Finances

Do you need the check or not? Are you part of the 25% of Americans who just lost their jobs? Are you part of the half that can’t cover a $400 unexpected bill? If you fall into these categories, now is the time to create a game plan to get you through this. Now is the time to build a budget. No excuses! There are a number of great budgeting apps that can help you take the first steps in identifying a budget to help you through the next several months.

What if you are among the many people who don’t yet need the stimulus check? Perhaps you are among the 75% that still have a job. Does that mean you’re safe? Here is what financial planners advise: In normal conditions, you need to set aside a three- to six-month emergency fund. But these are not normal times and we do not yet know when this pandemic may end. If you do have an emergency fund, ask yourself, “Will I have a three- to six-month emergency fund still standing several months from now?”

If your answer is “no,” then again, you need to build your budget. Visit 5 Steps to Build a Better Budget to get started with your personal budget now. If you want a great budgeting app, check out this list of the 15 best budgeting apps of 2020.

If you already have an emergency fund for the next six months, what should you do? Invest your stimulus check. This is the best time in the last 40 years to do so. After reaching record highs in early March, the stock market has dropped violently over the last three weeks. We are currently deep into a bear market, when the stock market drops 20% or more. Since the 1929 stock market crash that set off the Great Depression, there have only been 10 bear markets. On average, bear markets have troughed at 27%. In the past three weeks, the market has, at times, been off of its peak by over 35%. This means there is a rare opportunity to follow the age-old investment tip: Buy low, sell high. In recent weeks, as is typical in times of crisis, people have been doing the opposite. Selling low.

The biggest reason rational investors don’t buy now is their money is already fully invested. There is nothing left to invest. So when your stimulus check arrives, use this money to buy low.

Now is the time to start preparing for the future.

2. Own Your Financial Life

Your financial situation is what it is. Own it. Psychology has proven time and again that the number one way to succeed at anything is to accept responsibility. When you understand that you can take control of your situation, you’re taking an important step toward success.

Now that you have created a budget, you’ll recognize there are only two variables to work with: What you earn, and what you spend. Revenues and costs.

When it comes to spending, the American Institute of Certified Public Accountants’ financial literacy project tells us that most people follow the 50/30/20 rule, whether we know it or not: 50% of our after-tax take-home pay is spent on necessities, 30% is spent on lifestyle expenses (clothes, entertainment, eating out, travel, etc.), and the final 20% is generally spent toward either paying down debt or toward savings. This means that most of us can cut 50% of our spending simply by limiting it to our necessities.

If you are financially fragile, now is the time to cut costs.

3. Do the Right Thing

Get busy living. If you just lost your job, get ready for the future by exploring all possible revenue sources. Welcome to the gig economy. What gigs can you pick up to minimize the impact of your temporary job loss? Remember, you aren’t looking for a permanent job or a new career (though you might get lucky and find one). You are looking for a way to stretch that stimulus check as far into the future as you can.

Doing something right goes for all of us, not just the 25% who have lost jobs so far. One of the great dangers in a widespread crisis is for people to use the opportunity to do the wrong thing.

For example, in the recent Great Recession, when many people couldn’t pay their mortgages, others took advantage of the situation. Using the public outcry against lenders who had taken advantage of the financially illiterate, others engaged in opportunistic behavior to walk away from mortgages they were capable of paying. They didn’t want to accept the responsibility paying for a house that had dropped in value.

Doing the right thing is an ethical choice, not an economic one. All of us need to accept personal responsibility for our financial choices. Don’t use the current crisis to make the situation worse for others by focusing on your own personal gain.

4. Live Generously

Generosity is the best way to come together while living apart. Some of us have more time than ever before to help others. Analyze your own personal situation. If you fit in a low-risk category, ask yourself, “How can I help in a way that is safe?” Now is a great time for all of us to step up and do something, even if it doesn’t benefit us financially.

And use your creativity. My wife and I are at a stage in life where we are financially blessed. To add to it, I still have my job as a college professor, with more work than usual transforming traditional courses to an online format. My two youngest sons are not so fortunate; both lost their jobs in the last few weeks. We offered to pay our sons the same rate they get as Amazon Flex delivery drivers to help at the local food bank where my wife normally helps with math tutoring. So now they can pay their rent while making a difference by helping others.

We are all in this together. By taking the moral high road, we can greatly mitigate the long-term economic effects of the COVID-19 pandemic.

John M. Thornton, CPA, Ph.D., is the LP and Bobbi Leung Chair of Accounting Ethics at Azusa Pacific University.