by Maurie Backman | Updated July 17, 2021 - First published on March 31, 2020
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A windfall may be coming your way. Here are some tips for managing it.
On March 27, President Trump approved a major stimulus package to provide economic relief in the face of the COVID-19 crisis. In a nutshell, that plan will put $1,200 in your pocket if your earnings fall below a certain threshold. If you have kids, you'll get another $500 for each one.
Eligibility for a stimulus payment will be based on your adjusted gross income (AGI) as reported on the last tax return you filed. If you already submitted your 2019 taxes, that's what will be used to determine your payment; otherwise your 2018 return gets counted. Here are the income limits you need to know about:
|If Your Tax-Filing Status Is:||You’ll Get a Full Stimulus Payment if Your AGI Is at or Below:||You’ll Get a Partial Stimulus Payment if Your AGI Is:|
|Head of household||$112,500||Under $136,500|
|Married filing jointly||$150,000||Under $198,000|
Data source: CNBC.
With that information in mind, if you are getting a sizable stimulus payment, it pays to put it to good use. Here's how.
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If there's one thing we can all learn from the COVID-19 outbreak, it's that having an emergency fund is crucial. If you don't have one, take that stimulus money and put it directly into your savings account. Your goal should be to have three to six months' worth of essential living expenses in the bank so that if you lose your job or take a hit to your income, you'll have a way to pay your bills.
Americans are being advised to stock up on essential supplies in order to limit trips to the supermarket, or to be prepared in the event of a 14-day quarantine. If you don't have the things you need to hunker down at home for two weeks at a time, use some of that money to buy groceries, medications, cleaning products, and personal hygiene items.
If you're good on emergency savings and well-stocked on everything you need to stay well-fed and safe at home, you can take your stimulus payment and use it to pay off any high-interest debt you're carrying -- namely, that of the credit card variety. Shedding a monthly bill could take a lot of stress off your plate if your income gets cut during the ongoing crisis.
Don't need that extra money for emergency savings, essentials, or debt payoff purposes? Investing it is a great way to grow it into a larger sum. With the stock market being down, now's actually a prime time to buy quality stocks or index funds on the relative cheap. You can invest that money in a traditional brokerage account or a retirement plan, like an IRA. With the latter, you'll reap some tax benefits to boot.
It's unfortunate that we're in a situation where we need a stimulus in the first place. But if you're entitled to one, you might as well make good use of it. And with any luck, that windfall will provide a bit of financial relief and comfort at a time when life seems anything but normal.
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