Most military families will be receiving a stimulus check as part of the economic relief package to help people affected by COVID-19. Military families are in a unique position that they’ll continue to receive their full military paycheck, so the best thing for a military family to do with their stimulus payment may be different that for other folks. So, what are the best things to do? It’s pretty much the same list as for any other “extra” money, whether that’s your monthly savings or income tax refunds or bonuses.
Get Yourself Current on Necessities
Despite a regular paycheck, many military families still struggle to pay day-to-day expenses. If this is you, take a portion of the stimulus check to pay off outstanding bills for essentials: housing, food, utilities, basic transportation, and child care if necessary.
If you fall into this group that needs to spend this stimulus check on life essentials, please reach out to get some financial counseling so you can pay your essentials on your military income. Your installation financial educators may not be available in person, but they may be available by phone or online, or reach out to me and I will find someone to work with you. Seriously. Not kidding. This check is (probably) a one time deal and you need to have a plan to take care of yourself the rest of the time, regardless what is going on in the world.
Build Your Emergency Fund
An emergency fund is the foundation of any financial plan. The current situation, with higher expenses for some food, and folks losing their jobs, is making it more obvious just how much we all need to have emergency savings. If you don’t have an emergency fund, start one. If you have one, perhaps it needs to be a little bigger.
There are a couple of schools of thought on how much money you should have in your emergency fund, and your emergency fund size depends on a lot of factors:
- how many people you are supporting
- your location
- the stability of your income(s)
- your debt situation
A single person, living in the barracks, with no debt, and only an hour drive from home might only need $500 in their emergency fund. A family of seven with a mortgage, a looming mandatory retirement date, living across the country from their older parents may need tens of thousands of dollars in their emergency fund. Every situation is different.
There is a strategy element to your emergency fund if you also have debt. It can be hard to find the right balance between building up your savings and paying down your debt. You want to have a large enough emergency fund to get you through most situations, without spending months or years building up a full 6-12 months of expenses before attacking your debt. For me, the sweet spot is the larger of a) one major car repair, or b) how much money it would take to get the whole family home if someone becomes seriously ill.
But about that debt:
Pay Off Debt
As long as you have your basics covered and at least a small emergency fund, the next best thing to do is pay off debt. Once again, there are all sorts of strategies for paying off debt, and nothing is right for every situation.
The debt snowball strategy has you pay off the smallest debt first, then apply the amount of that payment to the next largest debt. This strategy is good because you accomplish paying off whole bills fast, which is encouraging.
The debt avalanche strategy has you pay your bills in order of interest rate, starting with the most expensive debt. This is the mathematically most advantageous method.
The big rock strategy (my own invention, thank you very much) has you pay off the debt with the largest monthly payment. This frees up the most money in your monthly budget. In most cases, mortgages aren’t included on the list, and sometimes not car payments. The specifics will depend on your debts, their amounts and monthly interest rates. For example, paying off a low interest rate, large payment auto loan that only has five payments left might be a great way to knock something out (feeling good!) while freeing up a chunk of money each month.
Save For Other Things or Contribute To Recovery
If you’re in good shape financially, have a decent emergency fund, and are debt free, you have all sorts of options. Increase your retirement contributions a little bit. Buy gift cards from neighborhood small businesses. Beef up your vehicle replacement fund or your home repair fund or your travel fund. Make donations to charities. Fund your kids’ 529 plans. The important part at this step is to be thoughtful about your saving and spending, and not go out and put a down payment on something whose payments will remain long after that check is gone, or buy a bunch of stuff that isn’t important.
Many families around the world are struggling financially due to the unprecedented situations being created by the COVID virus. Military families are in a uniquely good financial position because their paychecks aren’t being impacted by the virus. This means that the stimulus checks are a great way to make some positive steps in your financial plan.
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