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The best moves to make with your stimulus check based on your situation

Erin Lowry, author of "Broke Millennial" and "Broke Millennial Takes On Investing."
Photo by David Rodgers

If you are eligible to receive a stimulus check from the government in the coming weeks and months, you may be wondering how to best use the money.  

Economic impact payments of up to $1,200 per adult and $500 per child under 16 have started going out, and you can track yours through the IRS Get My Payment portal.

How should you best use this opportunity? Should you spend the money, or save it, use it for rent or to pay down debt? The best answer for you will depend on your circumstances. 

Here's what I suggest:

If you've lost your job and have no emergency savings

If you've lost your job or income, your first step is to file for unemployment. It's taking people a longer time to get through filing an unemployment claim, so you'll want to begin the process as soon as you can to bridge any gaps. 

Look at your most pressing bills and use the relief check to cover your essential needs: food, shelter, utilities, and maybe your phone, depending on what role it plays in your life.

Should $1,200 not cover those needs, which is common in larger, more expensive cities, use it to make a dent. Remember you can reach out to your landlord about pausing or reducing rent payments and to your utilities companies to discuss delayed payment, especially if you have yet to receive your first deposit from unemployment benefits.  

If you have job stability but no emergency savings

Current income is enough to cover your essentials? Put the $1,200 stimulus check into savings. If you do lose your job and end up having to wait for unemployment benefits to arrive, this way you will have funds at your disposal. 

If your current income is not enough to cover your essential needs, use the $1,200 to pay for them. Any remaining funds can be put into savings to prepare for an unstable job market that could persist for the foreseeable future. 

If you have emergency savings but you're not sure your job is stable

Run your essentials budget (more on that below) and be realistic about how far your emergency fund will go in the event you are laid off or your pay is cut. If you can, aim to have anywhere from 4 to 6 months worth of funds stashed in your emergency savings, just in case. 

It can be really tempting to focus on supporting others with your stimulus check if you feel fairly secure thanks to your savings. Remember, though, you need to put on your own financial oxygen mask before assisting others.

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If you have a modest emergency fund and job stability 

If you have about 1 to 3 months worth of funds saved up and are currently working, you have some options. Think about your risk tolerance before you decide how best to use your check.

If you feel that there is the potential of losing your job or taking a pay cut over the next few months, consider putting up to two-thirds of your stimulus check into your emergency savings fund. The rest you could spend in your local economy or donate to charitable organizations.

If you have emergency savings and job stability 

If you're fortunate enough to have job stability and an emergency savings fund that can cover anywhere from 4 to 6 months worth of expenses, you could spend some or much of the money to support small businesses and charitable causes you care about.

You could also put the money toward a long-term financial goal like paying off your student debt or a future down payment on a home. 

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All of this can feel overwhelming. As you are navigating these choices, try these three helpful exercises.

Create an essentials budget

How much do you need to hit all your essential needs in a month? Experts say you should account for the costs of housing, transportation, food, utilities, and medicine. You should also add your minimum monthly debt payments for the full picture of your budget.

Dan Ariely, Chief Behavioral Economist at Qapital and author of "Dollars and Sense," recommends that when you create this budget, imagine that you're starting from scratch. Instead of looking for what you can cut, invert the strategy to focus on what expenses would be important to you if you were building from the ground up.  

Determine your hierarchy of payments

As part of your budget, create a hierarchy of your bills. This means knowing which payments you 100% need to make and which are less crucial to pay on time and in full. Don't simply duck the bills, though. Especially now, with relief programs at your disposal, always try to reach out to creditors to tell them you're short on funds and ask about making partial or delayed payments.

It helps to understand how suspending some payments could potentially affect your credit score. Being proactive and suspending certain payments through a relief program shouldn't harm your score but missing a payment could if the information gets put on your credit report.  

Know your relief options and what questions to ask

Federal student loan payments have essentially been frozen for six months with no interest accruing. You do need to double check that your federal loans are eligible before you decide to suspend your payments, though. Private loans are not eligible under this program but you can reach out directly and see if your lender is providing relief. 

Reach out to banks, credit card companies, and other lenders about relief programs before any missed payments occur. Ask about the following options:

  • Waiving fees on bank accounts
  • Delayed or deferred loan payments
  • Delayed or deferred credit card payments
  • Credit line increases, but this should only be used as a last resort. 
  • Collection forbearance for items that were sent to collections or about to be sent to collections prior to COVID-19.  

Many utilities and telecommunications companies around the country are also offering relief in the form of either delayed payments and/or waiving late fees and not disconnecting service in the event that you miss a payment.  

Renters should proactively discuss their situations and options with landlords before a missed payment. Eviction bans have been rolled out in many cities and states around the country, so it's important you educate yourself on your rights before you talk to your landlord. It's also wise to come armed with a suggested solution, like paying 25% of your monthly rent, or whatever you can afford, as a good faith gesture for right now. 

Erin Lowry is the author of  Broke Millennial," "Broke Millennial Takes On Investing," and the forthcoming "Broke Millennial Talks Money: Stories, Scripts and Advice for Navigating Awkward Financial Conversations." You can find her at Broke MilliennialTwitter, and Instagram.

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