Monday, 20 April 2020

Millions of Americans will receive government payments in the coming weeks, up to $1,200 per adult and $500 per child.

(The full amount starts phasing out for individuals earning more than $75,000 and married couples earning more than $150,000.) These payments are part of the U.S. Coronavirus Aid, Relief and Economic Security (CARES) Act, passed by Congress in late March 2020.

The amount each household receives will vary, but in general, a family of two adults and three children with a household income of less than $150,000 can expect to receive a cash infusion of $3,900. While the U.S. government sends out tax refunds every year, those are the result of overpaying on taxes. This money is different; it's completely free, with no strings attached.

The stimulus payments are intended to help Americans weather the economic storm caused by the novel coronavirus COVID-19, and to get more money back into the economy. But how you spend your funds is your choice. Here are a few important options to consider.

Stimulate the economy

Social-distancing guidelines have kept people out of restaurants, bars, theaters, and retail shops, and as a result, local economies are suffering. Consider using a portion of your stimulus payment to get takeout from a local restaurant, purchase a gift from an independent retailer, or get cocktails to go from a neighborhood bar. You'll be supporting your local economy and having a bit of (much-needed) fun at the same time.

Build your emergency fund

The coronavirus and the economic upheaval that has accompanied it have demonstrated the dire importance of a solid emergency fund. Most financial experts recommend having an accessible emergency savings account with enough money to cover three to six months of expenses. If you don't have a fully funded emergency account, consider using some or all of your stimulus payment to start or continue building one.

If you had an emergency fund in place, the coronavirus crisis may be an emergency that requires you to tap into that account. If so, your stimulus payment could go toward rebuilding your emergency fund.

Pay down debt

Carrying excessive credit card debt or other consumer debt can prevent you from being able to build an emergency fund or meet other financial goals. In that case, using your stimulus payment to pay down credit card or other debt could be a wise move.

If you have several outstanding debts, prioritize paying off the one with the highest interest rate first, and then move to the one with the next highest rate. Getting out of debt now can help you avoid excessive interest and be better prepared for a future crisis.

Pay taxes

The IRS has extended the deadline for paying 2019 taxes from April 15 to July 15, 2020. If you owe income tax for 2019, you may need to use your stimulus payment to cover those taxes. Also, if you make estimated tax payments for the current year for income earned through self-employment or gig work, the first estimated tax payment for the year is due on July 15, 2020.

Pay bills

If you're one of the millions of Americans who has lost income or employment as a result of the virus, you may need to use your stimulus funds simply to cover some of your monthly bills.

Research shows that one in four Americans has lost a job or income due to the coronavirus. For many, a $1,200-per-person stimulus payment will hardly be enough to stay ahead until work is available again.

If you continue to have trouble paying your bills, you might consider filing for unemployment benefits, which are now available to self-employed workers as well as those who were traditionally employed.

A crisis like the coronavirus pandemic is, by nature, fraught with uncertainty. Because there's no way to know for sure how long social distancing measures and economic stress will last, it's wise to use extra money—like the stimulus payment—in a way that will improve your financial situation in the weeks and months to come. Making a good choice about your stimulus payment can set you up to be more confident and secure moving forward.

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