I hope everyone continues to be safe and healthy. Today we are going to focus on the money from the government that may be coming to your checking account soon. Specifically how much people are getting and if you get a refund, how you should be spending it. So let’s get to it.
How did we get here?
The Coronavirus has caused massive impact to the economy. Unemployment rates have spiked to what is estimated to be about 15% of the US workforce and the thinking is that number will continue to climb in the coming weeks, especially if we continue to struggle containing the spread of the virus. To help assist with the overall impact, Congress passed an economic relief plan in late March worth over $2 Trillion of spending and bail outs. Included in the stimulus bill was the authorization of payments to individual Americans. For right now, this will be a one-time direct payment.
Not everyone will get these payments so let’s first talk about who is eligible and how much people will get. The plan provides $1,200 for each adult and $500 for each child under the age of 17. So a married couple with 2 children would start out by receiving $3,400 as a payment from the IRS. However, there is an income requirement as part of the eligibility that could mean you get a reduced payment or even zero. So let’s talk about how that works.
Your payment will be based on how you filed your 2019 taxes, or your 2018 filing if you haven’t yet filed for the 2019 year. If you filed as an individual and made less than $75,000 in adjusted gross income, you will receive the full $1,200. If you are an individual and make more than $75,000, your payment will be reduced by $5 for every $100 you make above $75,000. So for example, if your adjusted gross income is $80,000, your payment would be $950. If as an individual you make more than $99,000, you will not get a refund.
The eligibility is different if you are married and file your taxes that way. For married couples, the income threshold raises to $150,000 and any married couples making more than $198,000 will not receive any payments. The IRS will do the calculation and then send the payment to the banking account information they have on file for you. For most people that will be direct deposit and not a physical check, but, if the IRS doesn’t have direct deposit account information for you, they will launch a website in the coming weeks where you can provide that info. Check the IRS.gov website for updates. Check your account because you may have already received your stimulus payment.
If you are getting a payment, you may be wondering what you should be doing with it. Well, here are some tips for how to use this money to boost your personal situation.
Idea 1: Shore up the basic necessities
So not at all sexy in any way but the first thing you have to do is ensure you have your basic necessities handled. So what all is included in basic necessities? That would be things like housing (so a rent payment or covering your mortgage), food, basic utilities like power and internet and covering at least your minimum loan payments for credit cards and student loans. Remember that missed payments on your debt can start to rapidly impact your credit score so if things are getting tight, it will be important to look at your budget and find places you can reign in spending to make sure you are focusing on the basic necessities. That must mean handling your debts.
Idea 2: Feed your emergency fund
Again not the sexiest use of found money but as this pandemic has shows us, unexpected events can and do happen. Taking $100 to $300 and putting it away for a future rainy day is a prudent move, especially with so much uncertainty on the horizon. Even if your employment and paychecks seem extremely secure right now, you could catch the virus and start to incur medical bills or face other disruptions. This is where our emergency savings come in handy and prevent us from taking on debts on a credit card or dipping into our 401(k) plans via loans.
Idea 3: Support your favorite restaurant
There is a restaurant that Sarah and I have been going to for 7 years called The Lot. It is a really fun place with tons of outdoor space for kids to run and play. On Friday they announced the restaurant is closing for good because of the lost revenue from missing Spring, one of their busiest time of year. Unfortunately this same story is playing out all over America as the pandemic has forced us inside. Some are making it by with take our orders and delivery but by the time this is all said and done the hospitality industry may never be the same in the US.
I love food and eating out and it is so hard for me to watch this happen to some of my favorite places and their people. So I think we have an obligation to serve the people that have literally been serving us our food and drinks for years. Use some of your payment money or your own money to support local restaurants and their people. You can buy gift cards and use them or give them to family and friends as birthday presents. At a minimum you can pick a night or two for take out and safely go support these places that need us right now.
One of our favorite restaurants in Austin is called Odd Duck. We had our rehearsal dinner for our wedding there and it just means a lot to us. They have created a Go Fund Me page to help their staff make it through these tough times. Other places are doing similar things and you can check out the websites and newsletters of your favorite places to see if there are ways you can help.
Idea 4: Treat Yo Self
Things are crazy. And crazy doesn’t even do justice to what we are living through right now. There is a reason retail therapy is a term you’ve probably heard before. It can make us feel good or be less stressed to buy something cool. But a word of caution before you go on a spending spree. The happy feelings are usually pretty temporary especially when spent on physical stuff as opposed to experiences. But we can’t really have experiences right now when we are all locked up in our apartments and houses.
Maybe we can find a win-win in all this. You can treat yourself to something nice and buy something from a local merchant or small business. My gut tells me that Nike and Amazon are going to be okay on the other side of all this. But smaller stores or local boutiques may not make it, especially if this lasts for another couple of months. They have rents to pay and inventory they’ve purchased that require sales to be coming in the door. If you are a store that relies on foot traffic and people to be out-and-about, you may be in trouble.
Try to find local businesses that still have online ordering or are taking orders over the phone with different ways to pick up or have your products sent to you. They need our help and you can still get something nice to use or wear at home.
If I had to guess, we may see more of these types of payments coming our way. But if that does happen, it means we are in for some more pain in our economy and maybe in our own income or opportunities. Of course I hope that isn’t the case, but it is an outcome that we have to keep an eye on and prepare for starting now.
There are times in life to be aggressive and times to be cautious. That is true for the risks we take with our careers and with our money. Given all the unknowns in play, I’m going to be more cautious for now. We are all different and can handle different amounts of risk and stress. Now is a good time to reflect on how much risk you are willing to take and what that means for your budget, your investments and your emergency savings.
Stay safe, stay healthy and stay calm.
- Ben