How Would You Like an Extra $2000 a Month?
By: Keith Mcbride
Tags: Economics, Business, Finance, Money, Politics

How Would You Like an Extra $2000 a Month?

Americans anxiously await a second stimulus

Getty Images / MicroPixieStock

I’m sure you’ve heard of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law by the president last month. This law provides $300 billion worth of stimulus to be given to qualifying Americans. For many, this resulted in a $1,200 payment. I have articles that go into detail concerning the CARES act if you’re curious to know more. If you receive your tax refunds through direct deposit You should have received your stimulus payment on or around April 15th.

Fantasy vs Reality

Recently Treasury Secretary Steve Mnuchin was quoted as saying that he believed Americans could survive 10 weeks at $1,200. The national average rent for a one-bedroom apartment in the United States is $965 per month, with the average in our nation’s capital being $1511 per month. The national average spent on groceries in the United States is anywhere between $165 per month to $350 per month. Even a hypothetical average unemployed American having average one-bedroom rent and average minimum grocery bill would struggle to get by for one month on the $1,200 stimulus.

Rethinking the Stimulus

Fortunately, some in Congress have realized the shortcomings of the well-intentioned first round of stimulus payments. Congressmen Tim Ryan of Ohio’s 13th district and Ro Khanna of California’s 17th district have written the Emergency Money For the People Act. This act addresses many of the concerns the previous round of stimulus payments failed to acknowledge.

The Emergency Money For the People Act aims to give Americans who qualify $2000 per month for six months until unemployment levels return to pre-coronavirus levels. The bill stipulates that payments would continue until the employment to population ratio is greater than 60%. As of this writing, 22 million Americans, or 13.5% of the labor force, have filed for unemployment since March 14.

Photo by Shane on Unsplash

How’s it Similar to CARES?

The Emergency Money For the People Act is similar to the CARES Act in two noteworthy ways. Much like the $1200 stimulus payment, the $2000 per month payment would not count as income for tax purposes. Also, the payment would not make the recipient ineligible for other forms of state or federal government assistance.

How’s it Different?

The second stimulus would include more Americans than the CARES Act. The Emergency Money For the People Act ensures that eligible Americans will receive regular payments of $2000 per month, even if they are college students or disabled adults who are being claimed as dependents. This eligibility is extended to the formerly unemployed, currently unemployed, and people who had no earnings.

Who is Eligible?

Every American 16 years of age and older who earns $130,000 per year or less will receive the $2000 per month stimulus payment.

This means that 80% of Americans 16 years old and over will receive full benefits. Couples who earn less than $260,000 per year will receive $4000 per month. Americans who claim dependents would receive $500 per month per dependent, limited to three dependents.

This means that a single filer would receive $2000 per month for at least six months until the employment to population ratio is greater than 60%. A single parent with three dependents would receive $3500 per month. However, a single parent with five dependents would also receive $3500 per month, because the act imposes a three dependent limit.

Hypothetically Speaking…

This works much better for our hypothetical average unemployed American. The example at the beginning had this person spending $965 per month for an average one-bedroom apartment, and at least $165 per month for groceries, totaling $1130 per month simply for food and shelter. Having only received the $1200 stimulus payment, this person can pay for food and shelter and have $70 leftover, assuming he or she has no other bills. If the Emergency Money For the People Act is passed into law, this hypothetical average American can cover his or her food and shelter for at least six months with $870 leftover every month.

What To Do With It?

I like to assume that every article I write might be someone’s first personal finance article. If that’s true for you, then welcome. You’re taking your first steps into a much larger world.

However, be aware that none of this is financial advice. You’re encouraged to do your research.

I’m not going to speculate on the likelihood of the bill passing into law. But I will offer that you should have a financial plan whether the bill passes or fails.

Let’s conduct another thought experiment. You’ve recently become unemployed. Sometime shortly, the Emergency Money For the People Act is passed into law and you receive your first $2000 payment. What should you do with it?

Step 1: Prepare

You should prepare to receive the second stimulus by taking a long look at your spending habits and seeing what you can afford to eliminate. Carefully review at least three months of your expenses and see if you are making payments for things that you’re not using anymore. Many of these payments may be small, but in aggregate will eat away at your money. You may have several subscriptions that you are still paying for but haven’t used. You may have a gym membership that you’re still paying for but cannot use. You may still be paying to use a garage near your old job, though you’re unable to go there anymore. Go over your finances carefully and account for every dollar that is spent.

Step 2: Cut Spending

Once you’ve discovered that you’re making payments for services that you haven’t used or can no longer use, get in contact with those service providers, and stop the payments. Make every effort to get a refund for the time that you haven’t used the service. Some businesses will be understanding and give you a refund. Some will not. But it is worth your time to ask for a refund on every dollar that you’ve spent in error.

Step 3: Budget

Now that you’ve cut your spending by eliminating services you don’t use, you should create a budget to ensure that your money is used optimally. Your budget may help you see areas where you are overspending and may be able to eliminate waste or switch to a more cost-effective service. It will also help you to ensure that every dollar has an assigned task.

Your budget should account for three things: everyday living expenses, savings, and debt repayment. You may find that your lenders have lower interest rates and very generous policies right now considering repayment. I would suggest reaching out to them to see what their policies are. You might be able to lower your interest rate or stop payments on debt without penalty.

Step 3a: Savings

Even if you find yourself unemployed and using this stimulus money to make ends meet, I would still admonish that you set aside a portion of the stimulus for savings. Even in this time of economic uncertainty, you still want to have an emergency fund. An emergency fund is a savings account that usually contains at least three months’ worth of spending. If you don’t have an emergency fund, your first job is to build a beginner emergency fund. This beginner fund should contain $1000 to cover any unforeseen emergencies. I’ve written about emergency funds in previous articles.

Step 3b: Debt Repayment

You mustn’t neglect debt repayment. As I mentioned earlier, contact your lenders and see if they have lowered interest rates and/or new policies like debt forbearance. If you are in the process of building your beginner emergency fund, try to make only the minimum payments on your debts. Once you have your beginner emergency fund set up with $1000, it’s important to shift your thinking to eliminating your consumer debts. This will include everything except your mortgage and your student loans (if you have either of those).

Once your beginner emergency fund is set up with $1000, organize your debts in your budget from the lowest balance to the highest balance. Then while continuing to make the minimum payments on all of your debts, focus on the debt with the lowest balance. Pay as much as you possibly can on your lowest debt every month until it is gone. Then when that debt is gone, add the money being paid to the lowest debt to the minimum payment for the next lowest balance on your budget. Keep doing this until the balance is paid. This is called the Debt Snowball. It’s a debt repayment plan popularized by Dave Ramsey. I have a few articles where I discuss the Debt Snowball more thoroughly.

Conclusion

Though it’s a nice sentiment, a $1200 stimulus payment doesn’t help the average American do very much. Fortunately, two Congressmen are seeking to make the lives of Americans a little easier in this most unpredictable time by proposing another stimulus. The Emergency Money For the People Act would give Americans $2000 per month until employment returns to pre COVID-19 levels.

It’s uncertain whether or not this bill will become law. However, you’ll need to get your financial house to benefit optimally. You must have a plan for this money. Tighten up your finances. Create an emergency fund. And, most importantly, pay down your debts.