by Anthony O. Kellum
As you may be aware the $2 trillion Cares Act rescue package includes a one-time pay out to individuals and families. And by now many of you if not all have received your stimulus check. While some have spent it, many are determining the wisest ways to invest, spend or save it. The specifics are: Corona Virus Aid Relief and Economic Security Act included a one-time check, up to $1,200 for individuals, up to $2,400 for married coupled and $500 added for each child based on income.
Some of you may have received the check and used it to cover essential needs and to pay other economic obligations you may have. Once those obligations have been met you should use the money to help build your emergency fund to cover three to six months of expenses. Once those two things have been accomplished consider investing … very cautiously invest or even donate.
If you are one of those people who are fortunate enough to cover your necessities and your emergency fund is already tight, you may be holding on to the money wondering how to put that money to work. A couple of things to consider, either save it or invest it for the long haul. Currently, you are able to earn great equities (equities are the values of shares issued by a company.) There could be great investment opportunities waiting on investors.
Equities are a smart investment for long term investors. Currently they are down approximately 32 percent from all-time highs and it would be wise to start slowly taking advantage of these opportunities.
One option is to max out your 2019 individual retirement account or Roth IRA. If you have already maxed it out get a head start on your 2020 contributions. Due to COVID-19 the deadline for making contributions to your 2019 IRA has been extended to July 15, 2020 the same date your income tax returns are due.
Another way to have your stimulus check work for you is to pay down your debt to better position yourself financially to purchase property. This could be an excellent way to pay off small existing debts that report to the credit bureau.
According to experts, “Reducing your debt-to-income ration will have a larger impact on your ability to buy a home than simply adding the same amount of cash to your down payment.
Your credit score determines your interest rate when purchasing a home. The higher your credit score the lower your interest rate which can make a huge difference when buying a property.
If your ultimate goal is to buy property, it is imperative to remember that your credit score is everything when you are buying a home which is why family finance experts recommend using a small portion of your stimulus check on a credit building loan.
Another option is to add your stimulus check to a home savings account. Recognizing that your stimulus check is not enough to cover a down payment, but it can be put directly into a home savings that could go towards a list of homeowner expenses.
Lastly, if you could afford it, donate your stimulus check. Several industries with hourly workers, nail technicians, restaurant workers, hairdressers, etc. had their main source of incomes disappear in the blink of an eye, but their financial obligations did not and their stimulus checks will not even scratch the surface of what they owe.
Food banks and other charities are also in need now, more than ever and the demand for their services are increasing but their budgets were set before the pandemic started. If your job is still in tack and your emergency fund is in good shape, you may want to consider donating a portion of your stimulus check.
Remember, however you choose to spend your stimulus check make sure your basic needs are met first and anything thereafter make thoughtful and strategic decisions.
“You must gain control over your money or the lack of it will forever control you.”
(Anthony O. Kellum is President of Kellum Mortgage, LLC.)