Uncle Sam gave me $600. Now what should I do if I do not need it?
At publication of this article, millions of Americans are currently about to receive a second corona virus stimulus check from the Federal Government that is half the amount of the first one passed nine months ago. Many of these individuals and their families need this money in order to pay for rent and food. Hundreds of thousands of families across the country are lining up in food bank lines in order to put the next meal on their tables for their family. We would think that this is an unfathomable thing for a developed country such as the United States of America, but it is. It is here. It is with us. It might be our neighbors, or it might be our own family members that are in desperate need of anything that they can get their hands on to provide for their families.
That is why, the first suggestion that I have is to donate the $600 (or less based on your income of 2019) stimulus check that you receive, that you do not need. If you already have a rainy-day fund of three months saved up already, the amount of return that you would get in the stock market on the $600 stimulus is less than the fulfillment of knowing that your unneeded stimulus money is actually being used by someone who actually needs it.
Unfortunately, the Federal Government has made donating a moot tax deduction for many lower to middle class Americans. The Tax Cuts and Jobs Act passed back in 2017 basically doubled the standard deduction and eliminated the personal exemption for millions of Americans. Donations are an itemized deduction. If you are a single person that does not own a home, have high medical costs, or did not have a catastrophic property loss (federally declared by the President only), then you would have to donate $12,401 in 2020 to benefit from itemizing your deductions instead of taking the standard deduction. Even then, donations are capped at 60% of your adjusted gross income.
You should still donate to charitable organizations, other than the Red Cross, even if you do not have a direct tax benefit.
If you receive the $600 stimulus check and do not have an adequate three month (six month preferable for CH Personal Finance standards) rainy day fund, then you should put all of it into your savings. This may be needed at some future point.
Next, let us assume that you have fulfilled your donation budget for the year and have an adequate reserve saved for a rainy day. This $600 can be used to potentially grow in value for when you might need it for retirement or a large purchase. Remember, investing is risk taking. You should only invest what you are comfortable to lose or be without. The absolute low a stock can go is $0 or meaning you can lose it all. However, the past performance of the stock market is positive. Not negative, not zero. This means that if you invest or place your money in the stock market, you are more likely than not to earn a return on your money. Sadly though, no one can predict or assume what something will do in the stock market. Not even Warren Buffet himself.
If you are 18-25 years old, you have the clock on your side. You can afford to lose that $600, because you are highly likely to make it back in your lifetime. You should take that money and invest in a growth stock such as Nvidia (NVDA) or Teladoc (TDOC). These companies are growing because of the technology being developed or the transition to mobile doctor visits.
If you are 26-40, you should grow on positions that you already hold. If you own Apple (AAPL), Amazon (AMZN), Chipotle (CMG) or Nike (NKE), then you should purchase more of that stock to grow your position in them and start to look towards retirement.
If you are 41-retirement age or are already in retirement, keep it safe. Keep your seatbelt on. Stop at the stop sign and continue to look both ways when the stop light turns green. Even if there is a young whippersnapper honking behind you to GO! Ignore them. Your investments should be conservative at this point. You should be placing that money in certificates of deposits (CDs), mutual funds, or safe ETFs. You should have a broad approach that mimics the overall market or a specific industry.
More to come!!!!!
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Thank you for making it through the first article published. If you have any suggestions on what should be written or what interests you, please reach out and let me know!