Business Finances & Taxes

Best and Worst Ways to Spend Your Stimulus Check as a Business Owner

On March 27th, President Trump signed the CARES Act into law. It provides over $2.2 trillion of financial relief for individuals and business owners who are reeling from coronavirus shutdowns.

The CARES Act is a sweeping piece of legislation that introduces a wide range of economic relief programs. But it also instructs the Treasury Department to send direct payments to United States citizens. Each eligible citizen will receive a $1,200 stimulus check and children will receive $500. Read our article on the stimulus checks.

Singles who make under $75,000 per year qualify for the full $1,200 stimulus check, while married couples with no children will receive the full amount if their combined income is below $150,000. The payment decreases from there by $5 for every $100 you make until eventually stopping completely. The Treasury Secretary says that payments could show up as early as three weeks from now if the IRS already has your direct deposit information.

These rules mean that a family of four who makes less than $150,000 per year can expect a $3,400 stimulus check to hit their bank account very soon. That’s a serious chunk of change. But how should spend your stimulus check?

Below, we explore the 5 best and worst ways to spend your stimulus check, specifically if you own a business or run a side hustle.

5 Worst Ways to Spend Your Stimulus Check as a Business Owner

Let’s begin with the worst ways to spend your stimulus check. You’ll want to think twice before using your check to do any of the five things listed below.

1. Make Payroll

While it’s admirable that you’d consider using your personal stimulus check towards paying employees, most business owners would be better served by applying for the Paycheck Protection Program (PPP).

All small business owners with less than 500 employees can apply for PPP. If accepted, you can receive an SBA loan for up to 2.5 times your qualifying monthly expenses, which includes payroll, rent, utility payments, and health insurance premiums. And the most amazing part about the PPP loans is that 8 weeks of qualifying expenses will be completely forgiven. The forgiveness option essentially turns the PPP loan into a grant.

The Paycheck Protection Program presents an incredible opportunity to continue paying your workers during this difficult time. To learn more about PPP and its various requirements and restrictions, check out our full guide.

2. Buy a Company Car

Yes, your stimulus check could be enough money to serve as a down payment on a car. But buying a new car (whether it be for personal or business use) would also be adding a new debt obligation to your life. And that’s something you’ll probably want to avoid during these uncertain times.

This general rule can be expanded to really any type of business or personal expenses. If you can use your stimulus check to buy necessary items free-and-clear, go for it. But using the money as down payments for installment loans on furniture, appliances, or equipment will only serve to make next month’s budget feel even tighter.

3. Pay Extra Toward Your Federal Student Loans

As a result of the CARES Act, federal student loan payments are paused for the next 6 months with 0% interest. You don’t even have to make a request to your loan servicer. They’ll just stop auto-debiting your bank account automatically.

Those 6 months of non-payment WILL count as payments towards forgiveness programs like Public Service Loan Forgiveness (PSLF). And if your student loans are currently in default, these 6 non-payments will count as payments for rehabilitation programs as well.

Under these conditions, you should not only be avoiding extra student loan payments, but even the money that you normally spend each month on student loans should be diverted to higher-priority expenses.

4. Book an Early Summer Trip

Whether for business or pleasure, paying for travel right now is a risky move. Who knows when coronavirus-related travel restrictions will be lifted. We could be looking at several more months of lockdowns.

Well before COVID-19 was a major concern in the U.S., I had a business trip planned for the beginning of May. Of course, the meeting has subsequently been canceled. The good news? My Southwest flight fare was “refunded.” The bad news? The funds can only be used on a future flight. And who knows how long it will be before I’ll need (or be able) to fly again.

A similar situation just happened to me with concert tickets that I bought for my brother’s birthday. The concert has been pushed back an entire year. Yet, instead of giving me my money back, the ticket company says that they’re going to transfer the funds to a new ticket for next year’s concert date. That’s a whole year that I won’t be able to use that money towards more essential expenses!

Yes, flights, hotels, and tickets are really cheap right now. But booking travel just won’t be a smart move for the foreseeable future.

5. Purchase Speculative Investments

As we’ll talk about in the next section, this a great time to start investing in the stock market. But you also need to be careful.

During times of high market volatility, there are always plenty of talking heads out there encouraging people to make risky investment choices. By the end of their blog post or YouTube video, you may be totally convinced that XYZ stock is poised to grow by 50% over the next 60 days.

But this is not the time for knee-jerk emotional investing choices. Don’t try to time the market, invest in single stocks that you’re “sure” will bounce back quickly, or buy a bunch of stock options. Stick with your long-term investment strategy, whatever that may be.

5 Best Ways to Spend Your Stimulus Check as a Business Owner

Now that we’ve looked at the 5 worst ways to spend your stimulus check, let’s flip the coin. Here are 5 great ways to spend your stimulus check that won’t leave you with regrets.

1. Increase Your Emergency Fund

If the COVID-19 crisis has brought validation to any piece of personal finance advice, it’s the need for emergency funds. According to the Federal Reserve, consumers should aim to have at least three months of expenses in their “rainy day” funds. But many experts say three to six months of expenses is a better target.

Yet the Federal Reserve says that only about half of Americans have enough saved to cover a three-month job loss. If your emergency fund isn’t where it needs to be, you could have an opportunity very soon to build it up by $1,200 or more. While you may feel tempted to spend that money on other things, stashing it away could reduce your anxiety while also better protecting your family.

Along with adding your stimulus check to your emergency fund, you may want to reevaluate where your emergency fund is located. If you have it stashed in a typical savings account, you’re only earning 0.07% APY on your money. But a high-yield savings account (like CIT Bank) or a Worthy Bonds account could yield 1.5% to 5% APY. Learn more about how to build your emergency fund.

2. Contribute to Your Self-Employed Retirement Plan

There’s never been a better time to start investing in the stock market. Why? Because the entire market is on sale right now! (Check out Betterment or Rocket Dollar for their roboadvisor investment options.)

So if you already have your emergency fund in place, contributing your $1,200 (or more) towards your self-employed retirement plan would be a really smart move. And if you haven’t opened a self-employed retirement account yet, now would be a great time to do so.

Whether you choose a SEP-IRA, a SIMPLE IRA, or a Solo 401(k), they each come with higher contribution limits than individual IRAs. And side hustlers can open up self-employed retirement plans too! Not sure which self-employed retirement plan is right for you? This guide will help you decide.

3. Pay Off Credit Card Debt

Paying off credit card debt may be one of the most effective ways to spend your stimulus check. According to the Federal Reserve’s Economic Research Department, the average interest rate on credit cards that are assessed interest is 16.88%.

But that’s just the average. Scores of Americans are paying well over 20% APR on their credit card balances. So being able to knock out one, two, or three thousand dollars of credit card debt in one fell swoop could save you a ton of money over time in interest charges.

In addition to their high-interest rates, it’s harder to put credit card payments on pause. While many mortgage and student loan borrowers are being given relief right now, your credit cards are likely just continuing to accrue and compound interest each day. So getting rid of that debt as soon as you can is almost always a smart financial decision.

If you won’t be able to pay off your full credit card balance with your stimulus check, you may want to consider opening a 0% balance transfer card. For tips on how to find the right balance transfer card, check out our complete guide to finding and using credit cards wisely.

4. Invest in Yourself

If your business is slow right now or your state is under a full “stay-at-home” order, you probably have more time on your hands than usual. A great way to spend that extra time would be to take a course that teaches you how to make extra money or start your own online business.

For example, perhaps you’d like to use your knowledge of personal finance to help people during this difficult time. If so, you could enroll in Financial Coach Academy to learn how to become a financial coach. Or if you’d like to work from home as virtual assistant, you could take Kayla Sloan’s $10K VA Course. Or you could learn how to make money on Etsy.

In my own life, paying a few hundred dollars for a freelance writer’s course has helped me build a 6-figure writing business. There are tons of resources out there that can help you start your own money-making gig. So don’t be afraid to use some of your stimulus check to take advantage of them.

5. Give Back

If your personal finances and your business are both in good shape right now, perhaps you could some of your stimulus check to help others who haven’t been so fortunate. Just take a quick look around your community and you’re sure to find plenty of ways to lend a helping hand.

One idea would be to donate to your local food bank. Or you could make an extra contribution to your church or a favorite charity. As someone who has family in ministry, I know many churches are struggling right now!

Local restaurants and retailers are really getting hammered right now too. Perhaps you could pre-buy gift cards to your favorite local spots. It would help the business owners get their hands on some much-needed cash now. And you’d, in turn, have gift cards to spend once restaurants and stores reopen for business.

The Bottom Line

There are endless ways to spend your stimulus check. And there are plenty of good ways (and bad ways) that weren’t covered in this article. But the overall point is to think through you how to spend your check to make sure your choices align with your present and future goals.

One piece of good news is that independent contracts or gig economy workers who’ve lost their jobs qualify for additional government money in the form of unemployment insurance. Learn more about how to get unemployment if you’re self-employed.

How are you spending your Stimulus Check?

Photo by Artem Beliaikin on Unsplash

Clint Proctor

Clint Proctor is the founder of the Wallet Wise Guy and a freelance writer. You can find his work at Business Insider, US News, Forbes, Yahoo Finance, Credit Karma, Student Loan Planner, and many other news sites and blogs.

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Clint Proctor

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