3rd Stimulus Payment = Government-Provided Emergency Fund

According to a recent report by CNBC, just 39% of Americans would be able to handle a $1000 emergency expense without borrowing money. With another round of stimulus checks on the way, I feel that number should soon improve.

According to irs.gov, the third stimulus payment has already began to be deposited into Americans’ bank accounts. If you haven’t gotten yours yet, you should receive it in the next few weeks.

Side note- if you didn’t receive a first and/or second stimulus check and you know you were eligible, you may be able to claim the Recovery Rebate Credit. Go to https://www.irs.gov/newsroom/recovery-rebate-credit for more information on how to apply.

This new stimulus payment will be the biggest of the three. While the first two checks paid either $600 or $1200 per person, the third check is for $1400 per individual, including dependents in your family.

The exact amount you receive depends on your income. If you make more than $75,000 as a single tax filer, or more than $150,000 as a married couple, the amount you receive is reduced. If you make more than $80,000 (single) or $160,000 (joint filers), you won’t receive a payment at all.

So when you receive your stimulus payment, what should you do with the money?

First, assess your financial situation. If you are having trouble paying your bills every month, then use the money to get current on all your expenses. You can then use the money to pay for any other urgent needs.

The second thing to consider is the status of your emergency fund. Do you have one? If not, use as much of your stimulus check as necessary to establish an appropriate emergency fund.

The standard advice is to have between three and six months’ worth of expenses in your emergency fund. Due to the uncertainty of the economy and the world right now, I would advise you to have at least four months of expenses.

You also have to consider your family and living situation. The more dependents you have, the more money you should have in your emergency fund.

If you own your home, you’ll need more money than someone who rents an apartment. You should also consider your employment status. While no one can predict the future, you should assess your job.

How secure is your position? Is there any chance at all you might lose your job in the near future or have your hours reduced? If so, increase your emergency fund.

Your emergency fund is so important and useful because it will allow you to handle unexpected expenses without borrowing money.

If your car gets a flat tire, you have to visit the ER, your refrigerator stops working, or someone (not you, of course) drops your phone in the toilet, you can rest easy knowing you have the cash to fix the problem.

People without emergency funds usually turn to credit cards, or worse, a payday loan center that charges unbelievable interest to cover their emergencies. This is a problem because now you are making your emergency even more expensive, since you’ll have to pay interest on your loan.

Also, some people never get out of debt once they start borrowing money. They just constantly take out another loan or swipe the credit card every time they need something. As a result, they remain in debt for months, if not years, for something they should’ve been able to pay cash for if they had an emergency fund.

If you don’t yet have an emergency fund, decide right now that you will establish one. The third stimulus check is as close to a government-provided emergency fund as we’ll ever get. Open a separate checking account for this purpose only, and as soon as you receive your stimulus check, transfer the money to your new account.

As Nike says, just do it. The next time you have an emergency, or God forbid, lose your job, you’ll be glad you did.