Here, and because of the COVID pandemic, many American’s have received a second, or like me are waiting to receive their second stimulus “check”. Ignore the fact that it’s actually, most likely direct deposit for you, or that many tens of thousands had their second “check” held up due to problems with the IRS putting wrong information in and nothing being done…
The real question here is “what to do with it?” Well, like so many financial questions, a lot of this has to do with your current financial and employment status. A year ago before the pandemic started, I would have said one thing, however, that was then, and this is … now.
So let’s break it down based upon several common situations.
I’ve been out of a job for a while
OK, this is the worst case scenario. Unfortunately I know several people who have been out of work for six to ten months at this point. Unemployment doesn’t or just barely covers the necessities. Here you can look at applying that money to the necessities – which I equate to food, shelter (including utilities), and (necessary) clothing.
Getting that money to make sure those bills are covered is essential. You don’t want to risk losing your residence or going hungry. Don’t do what someone I know did though and splurge on fancy foods. A delicious wild caught salmon might have made for a wonderful meal, but being able to add to your food budget for several weeks is even better.
While many states have enacted, or even extended, no eviction notices during this time, you don’t want to be staying in a place where you haven’t been able to pay your rent. As soon as they can, they will be coming for their back rent and/or evicting you. And if you list them as a previous place of residence, don’t expect a glowing review.
So focus on the real needs, and making sure you have what you need to survive.
Recently lost your job…or think your job’s a risk
The second category is you recently lost your job. I know several people who’s work kept them on for several months, but due to extended lock downs, etc the company either went out of business and/or had to start laying off people.
Maybe you got a severance (one person I know got several months salary) – maybe you didn’t.
It’s tempted to see that extra cash and buy the new PlayStation 5 or something else. However, since no one really knows what is going to happen or how long you will be unemployed, I would put this is savings in case you need it in several months. You can always splurge later on when you find a new job, however, just because you could find a job in 2 weeks prepandemic, doesn’t mean you can now. So be safe, and use that cash later on in one of the following scenarios.
Do you have an emergency fund?
You’re currently working, and feel your job is safe for the next six plus months. This means you see people buying from your company, other’s haven’t been laid off, etc.
But do you have an emergency fund. This isn’t the “lost my job” fund, this is you wake up and find out your fridge died over night, or you head to work and your tire hits road debris and needs to be replaced…
I recommend two sets of emergency funds actually. The first one is for $200. I recommend you keep this in cash in a safe place in your house. A safe, or a good hiding place is best. This is the “I need right money now, and the power is out so I can’t use my debit card” money.
The second I recommend another $800-$1,000 to be kept in the bank for one of those above mentioned emergencies.
Don’t touch that money unless it’s an emergency.
I have an emergency fund. Now what?
So your emergency fund is established. Typically I would recommend paying down any outstanding debts. If you have a small debt that could be covered maybe pay that off, so it’s one less thing hanging over your head.
However, for most people, I’d recommend putting it in the bank for a rainy day. I know several people who thought they’d have jobs even during this situation, or thought they’d be called back from furlough find themselves without.
I hate to admit it, but no job is completely safe, no matter what. So until this is over, keeping some money in reserve for a worst case scenario, might be the best option. Once it’s over then look at pay down your debts and/or creating a three to six month savings in case of job loss.
Typically three to six months is all that is needed, however, many financial advisors right now are suggesting nine to twelve months until the pandemic is under control.
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