What to do with Sudden Money


In the coming days and weeks many Americans are expecting stimulus checks if they haven’t already been direct deposited. If you want to know how much you can expect, here’s a good resource for determining what you will be eligible for. Now, instead of talking about how much you will receive I’d like to focus on what you should plan to do with the money you receive. This type of planning can also help when you receive other windfalls of cash in the future.

Necessities First

The primary purpose for the stimulus package is first and foremost to help those who have lost income make ends meet. So, if you need to use the money to buy food, pay rent, or pay for medical care then you should without hesitation. Though you need to be careful how you define necessities. Groceries to make food are certainly necessary, but prime rib as part of your groceries isn’t. Similarly, if you have lost income, recognize that you may have reduced income for several months, so using the money wisely will be important.

Savings Second

If you don’t need the stimulus or windfall to buy necessities, then you should next make certain that you have ample emergency savings. Particularly now, we should prepare for the strong possibility that the economy will go through a long and possibly deep recession that may hit many business sectors not currently being stressed. Knowing this, you should have three to six months of savings in an emergency fund. Though if you’re working in a sector that has been impacted you should try to have at least six months of emergency savings for when your income is impacted.

After we are through the current recession you can use the excess beyond three months on other priorities, but in the interim it will be better to make sure you safely navigate the coming months.

Fun Money

A small percent should be set aside for fun money, something you’ve had to forgo recently, or have been holding off on since the Stay at Homes orders started. I recommend no more than 10% be used for fun money unless you truly don’t need any of the money for current or future needs, and most people who qualify for the stimulus probably don’t fit that description.

Debt Payments

After you’ve addressed the first three areas above (necessities, savings, and fun money), take a look at your debts. This could be a great opportunity to knock a serious dent in any debt that you’ve been working to pay off. Student loan payments are currently deferred without interest for a little while, but a large one-time payment can help with future interest due, particularly with credit cards that are carrying balances or other high interest debt. If you have to choose between debt payments and emergency savings, it would still be better to make sure you can pay minimum payments and hold back money in savings for future months rather than pay down debts.

Future Savings

Many have had to reduce their savings due to the COVID-19 crisis, putting retirement savings, college savings, saving for a new home, etc. on the back burner. You should use at least part of the stimulus for funding these future priorities, or to invest so that you can build future wealth.

Finally, Spending

If you are comfortable with your retirement savings, your college funding, your down payment for that home you want to buy, or that car you’ve been thinking about, then you can plan on some spending. I’d still recommend that you focus on spending you were already planning, vacations that you’ve delayed or spending at local businesses you want to support. This will free up other income and savings for other priorities.

These priorities for sudden money won’t necessarily help your local economy recover more quickly, but you will put yourself and your family in a better position for the future. Setting a solid foundation is the most important way to set up for future success.