How Not To Waste Your Stimulus Check

How Not To Waste Your Stimulus Check

The following is a guest post from R.J. Weiss, Certified Financial Planner, author and blogger from

For most people, it’s a rare occurrence to get an unexpected yet significant sum of money deposited into their bank account.

But with the recent round of U.S. stimulus money going out, as well as the new administration in the U.S. promising additional relief, that’s exactly what has happened — and what may happen again in the near future.

U.S. Stimulus

In researching some data for Mark’s post, I found U.S. households hold on average $5,300 of cash. So an unexpected “windfall” of as much as $2,000 per adult represents a significant change. This is a scary stat unto itself I know…

So, I believe for any recipients of this money, it’s critical not just view this as free money but rather an opportunity to improve both your short-term and long-term financial situation. Just like Mark’s FI journey below:

The six phases of financial independence

Whether you’re from the U.S. or Canada or live anywhere else for that matter, I hope you feel the same!

Mental Accounting

One of the more fascinating concepts in behavioral finance is called mental accounting. I saw it with my some of my clients in the past.

Mental accounting represents a cognitive bias, which is a systematic error in our thinking.

Compare these two examples of acquiring money:

  1. Finding a $100 bill on the ground (U.S. or Canadian take your pick!)
  2. Earning $100 from a full day of back-breaking labor.

At the end of the day, both methods add $100 to your pocket. But how we view — and therefore, how we allocate this money — often depends on how it was obtained.

For most of us, the tendency would be to splurge after finding $100 on the ground; to buy something we wouldn’t have, or to make a quick short-term decision.

But when it comes to the money we earned through work, we’re more likely to think through how we want to use it.

Obviously, this is totally irrational. It’s the same amount of money, and we shouldn’t place any different value on it because of its origin.

With regard to our U.S. stimulus checks, our natural tendency is to treat them like we’d treat a $100 bill we found on the sidewalk. And specifically, to treat that “free” money differently than the money we worked hard to add to our bank account.

By doing this, we’re more inclined to make quick, short-term decisions that we may end up regretting. Hopefully most U.S. citizens don’t go down this road.

Knowing Your Financial Goals

In Mark’s interview with Canadian CFP® Steve Bridge on financial planning, they talked about the first step in the financial planning process as goal setting.

What is a Financial Plan and what should it cover?

Steve mentions with Mark:

“Without clear goals, a destination in mind, a proper financial plan cannot be created.”

In other words, it all starts with goal setting.

I agree with them!

For this reason, there’s no universal answer as to what to do with a stimulus check. It all comes down to the highest and best use of that money for your particular situation.

For many people whose income has been impacted by the COVID-19 pandemic, they need that money to keep a roof over their head and food on their table. I fully appreciate that.

For some people, the best answer is to pay down debt. For others, it might just be stashing it away in their emergency fund. Others still, can use it to help pay for their kids’ education, or maybe even use it to start a new business.

And yes, for some people, albeit maybe a minority, they may want to spend it. They could buy something they wouldn’t have spent any money on.

Financial Planning Simplified (in four phases)

Your own financial goals (I really like how Mark identifies his every year to keep him focused), we can determine exactly what the best use of your stimulus money is.

The way I look at financial goal setting is as an exercise in prioritization. In other words, with financial goal setting, you’re deciding that spending money in a certain way is better than other alternatives.

In economics, this process is known as maximizing opportunity goals.

The goal here is to know which goal(s) to prioritize while understanding and being OK with what you have to give up. Money involves trade-offs in life. For most of us, you simply can’t do it all!

The big question then becomes this: How can you narrow down your priorities?

Mark has his – but unfortunately, there’s no easy answer here — which explains why there’s an entire profession dedicated to helping people decide what their goals should be (and helping them figure out how to achieve them).

But, looking at financial planning from the most basic level, I share four key phases with you.

Phase #1: Understanding Where You Are Today

In order to make decisions about where you want to go in the future, you must know exactly where you are today.

It’s here where you’ll want to do things such as:

  • Create a net worth statement, which involves tallying up your assets and subtracting your liabilities.
  • Understand your cash flow, which means knowing exactly how much you’re earning and spending each month.
  • Create a financial SWOT analysis, where you look at your strengths, weaknesses, opportunities and threats, as related to your current financial situation.

The end goal is to get an accurate picture of your current situation, which will enable you to make better decisions about your future.

Phase #2: Choosing Your Goals

In Phase #1, you identified where you are. Now it’s about deciding where to go.

For many of us, when we evaluate our own situation, a financial goal (i.e., a financial priority) may come to mind immediately.

This is often the case with shorter-term financial goals, such as paying off high-interest debt, building an emergency fund, or making a long-needed home repair.

Mark continues to educate many people on these important subjects.

Others may have some more thinking to do. What’s important to keep in mind throughout it all is that you’re looking to maximize opportunity cost. In other words, choose the option that’s far superior to all others.

Phase #3: Creating and Implementing Your Plan

It’s here where you’ll put your plan into action.

When it comes to spending your U.S. stimulus money, this may be as simple as one transaction, such as paying off high-interest debt or saving it in your retirement fund.

But, overall, in the financial planning process, this stage is where you’re figuring out how to allocate your current cash flow in order to achieve your plan.

Phase #4: Monitoring Your Financial Plan and Adjusting (If Necessary)

Last, but not least is monitoring your plan.

Taking a big-picture perceptive (and not just looking at your stimulus check), this is all about having certain checks and balances in place to make sure that…

  1. The priorities you set remain your top priorities.
  2. You’re on a realistic path to accomplishing your goals.
  3. And, if not, determining what adjustments need to be made to get you back on track.

Final Thoughts – Financial Planning

When you know your financial goals, financial planning (as well as financial decision-making) becomes a whole lot easier.

Plus, it’s a lot more fulfilling because, at the end of the day, you’re getting closer and closer to what you decided was most important to you.

Mark’s site is a great example about what is possible when you have those processes down pat.

My Financial Independence Plan

Whatever you decide with your stimulus funds, consider following this four-phase process. I suspect if you give some time and reflection on this, you’ll make the best decision possible.

Thanks very much to Mark for some time on his site. Regardless if you’re a dedicated follower from Canada, the U.S. or around the world, I hope the key messages in today’s post help you out.

The Ways To Wealth* is an independent personal finance website that publishes reviews, “how to” guides, best-of lists, product comparisons and more. Since our inception in 2016, over 9 million readers have turned to us for insights and recommendations on topics as wide-ranging as side hustles, freelancing, frugal living, investing, travel hacking and everything in between.

The site’s founder and editor is R.J. Weiss, CFP®.

*U.S-based site, don’t get after me (Mark) too much on any U.S. spelling of check vs. cheque or labor vs. labour 🙂 We decided to maintain that for U.S. context. 

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

22 Responses to "How Not To Waste Your Stimulus Check"

  1. That’s great Chris. Share similar thoughts. And, for someone who doesn’t like the fact that these were very non-targeted payments, it’s a way to support those who need it the most.

  2. I am that guy who has been very disappointed with every single FI or FIRE person who has said they will invest or just put this away into their savings/emergency account. It is really bugs me, especially as a small business owner and knowing that this money is meant to be a “from the bottom up” injection of cash to support communities. This money should be spent in your home community at the local cafes, restaurants, take-out, grocery store, service, auto or non-profit etc.

    In BC we got a $1000 cheque this past month which is basically a Covid Stimulus cheque. I immediately went and spent that money of 6 local charities including the local food bank and the soup kitchen. I also went and bought groceries at the more expensive corner grocer, I bought gift certificates at the local coffee shops and then I went for a big supper with my wife at a local restaurant.

    We made sure that all that cash flowed to those who needed more than us. I qualified for the stimulus cheque because of my Financially Independent small income and frugal lifestyle even though I have significant savings. Thus the right thing in my mind was to pay it forward, support local, shop local and help my community. My investment account doesn’t need it.

  3. No problem with financial planning, and many apparently need help. The average Cdn has debt of 175% over their spendable income, even if they’ve added in mortgages.
    For the majority their long-term goals should center on getting out of debt and living within their means.Once there then they can look to future financial goals.

    1. Incredible right cannew? That amount of debt would be crippling to me. I wouldn’t be able to function. Luckily, our debt could be paid off tomorrow if we really needed it to be done. We won’t though, another 3-5 years of full-time work and we are likely in semi-retirement debt free.

      At least that’s the plan 🙂

    2. Well said cannew and eyeopening stat on the average household debt.

      Assuming that includes a mortgage. Have to find something similar for the U.S. Most data I see is non-mortgage debt.

    1. The thing is retired multimillionaires get stimulus checks, because very little of our stock growth and dividends appear in our adjusted gross income. I suspect many wealthy readers get the stimulus direct deposits. I know we have.

      1. Ya, I don’t get that really in the U.S., why are you/is the U.S. government given out money to people that won’t spend it or need it? Seems wasteful. I’m not saying we’re perfect in Canada either!! Far from it.

        1. LOL. The same thing happened here in Canada. 2.5 billion handed out to all people over 65 years of age, many of whom do not need it whatsoever. 636 million handed out to 15-17 year olds, almost all of whom live and eat with their parents. Average payout was $13K and the qualifier was earning $5K the year before. There are endless similar cases and ones also where no money came, or too little even though it was truly needed.

          Wasteful and poorly targeted!

          Good guidance in the post for those who haven’t figured that stuff out yet. Low rates have led to mountainous debt. Crazy.

          1. Thanks RBull.

            Policy is strange to me as well, as you’d think there’s a better way to get it in the hands of people who really need it. Nonetheless, a lot of people ended up with some an unexpected bonus.

            1. You’re welcome RJ Weiss.

              Here in Canada the emphasis was on pushing money out fast, with targeted money and qualifying standards taking a back seat. We pumped out more per capita than any country in the world so time will tell how people spend it and what it does for the economy.

              1. Yes, it will be interesting how it shakes down here. The need for speed/$$$ out the door definitely outweighed the risks of what people would or would not spend it on wisely.

                1. Agree.

                  The only known here is we have a massive pile of debt now and interest rates that have one way to go. Significant debt costs could resurface causing more hardship along with a need for higher taxes from those who have.

                  People who are financially savvy and prepared with a good plan will have a better chance of sailing through.

    2. Looking forward to the days we could get some money from the government, LOL. Another motivation to retire early? If we retire before both kids turning 17 years old, we can get some Child Benefit.


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