Stimulus suggestions: do’s and don’ts with a $1,200-plus check


“It’s like manna from heaven,” said a financial adviser The Signal spoke with this week about how people are reacting to the $1,200 check given to them through the CARES Act. 

Signed into law by President Donald Trump on March 27, the CARES Act was a $2 trillion economic relief package that included a number of stimulus bonuses for small businesses and individuals alike.

So, what’s the best way to use it?

The Backstop

James Loken, a Thrivent financial adviser, said first and foremost for when people get their stimulus check is to ensure your “backstop” is in place before you make any decisions on sales or purchases. 

“That’s the starting place for most financial life anyway,” said Loken. “I think first is to make sure you have some cash reserves.” 

Loken said even if you’re receiving both your tax return and stimulus check, which can happen for a number of people, you still need to ensure you have your backstop in place — because this period of uncertainty doesn’t truly have an end date, yet. 

Loken said a good backstop ranges between one to three months’ worth of money to cover all your expenses in that time period. There should also be enough, with a solid backstop, to cover the unforeseen expenses, like a broken-down car or a lost phone. 

“I tell people the first thing you want to do is store your cash, whether you’re a small business or an individual,” said Erick Arndt, a financial adviser at Virtue Wealth. “Focus on your cash because people ask me about, ‘Where do I invest?’ … and you don’t want to be investing with your last 5 bucks.” 

Arndt said at any time, and especially during a pandemic such as this, “Cash is king,” and if it’s tied up in investments, it makes it hard to provide for the day-to-day essentials. 

“If you need money to pay rent or you need to feed your kids, you don’t want that to pile up in investment — you want to have that in cash,” Arndt added. 

Investing in yourself

After you’ve established your backstop, there are a number of actions that need to be taken to ensure its longevity, while also investing in yourself. 

Discounts or the ability to pay less right now is not only available to people, but imperative for some, according to David Park of David Park Wealth Advisors.

“If you’re paying rent in an apartment, you can negotiate with most apartment owners,” said Park. “(Landlords) are dealing with their own things, but they realize that there’s a lot of people who just don’t have the money to pay the money for rent.”

Park said if there’s a way right now to negotiate any rent, loan or payment, such as that for a car or any other item of that nature, people should figure out a way. By doing so, they can ensure they have the immediate necessities like food, the phone and utilities covered. 

Loken said there were also people that now have their backstop in place, and now this stimulus check can be used to invest in one’s self in other ways, such as returning to a skill they once had or using the money to develop a new talent. 

Investing in the Market

While the market is one of the last things people who are truly in need of the stimulus check need should be looking at, if you do get the check and you have the backstop and you’re invested in yourself — there are a number of lucrative options right now for people to buy into in terms of stocks. 

“You start to build from the foundation up and you say, ‘OK, now I have my cash set aside, I have my estate planned and now I can get into paying off my debt,’” said Arndt. “If you don’t have any debt, then you move onto the fun stuff, which is investing.” 

You can add money to your IRA, add money to your 401k, and get a tax deduction for doing that, according to Loken. With a Roth IRA, you can add to your individual retirement account that offers tax-free growth and tax-free withdrawals in retirement. 

“You would want to buy things that are cheap,” said Loken. “If you look at a company like Ford, their stock was down for a $4 range, that had been up in $11 — that’s dirt cheap.” 

Loken said there are a number of opportunities out there presently, such as Ford and other companies that are 30% or more off their pre-pandemic trading prices, which people can invest in, as long as they have a prudent strategy in mind.

“Like Warren Buffet says, ‘Once every decade, we get an opportunity to seize the moment,” said Arndt.

If someone has a poor time in the market or loses large amounts of money, Arndt said it leaves a “bad taste in your mouth, about investing. They think investing is like gambling — and investing is not gambling, if you know what you’re doing.”

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