Does Your Stimulus Check Need a Triage?
By Kevin Gibbons
Some people are checking their bank accounts every day, looking for the COVID Stimulus check from the IRS so they can pay their rent, buy groceries, or keep their utilities on. Others are looking to pay down their credit card balances or other debts that may have increased during the past four months. Some may be sitting secure for the moment, looking to save this windfall for the future.
Whatever your personal situation, a Spending Plan will help you make the best use of this money. A Spending Plan is the map to fund the life you want to live. It helps you make sure you are spending purposefully on the things that really matter to you while living within your income and providing for your long-term future. When we create Spending Plans with our clients, we typically plan out a full twelve months, looking at regular monthly expenses, intermittent expense (those that happen once or twice over a year), essential expenses (such as paying rent or mortgage, utilities and food), and lifestyle expenses (those discretionary areas like eating out, vacations and gift giving).
But sometimes, people need a Triage Spending plan. This is a more short-term plan to make sure they are covering critical expenses while they are building their longer-term foundation. And this is where we come back to the stimulus check. If you are struggling to cover your expenses, or you are unsure of the future, you should perform a triage on your current obligations before using that income.
What is a triage? In medical emergency terms, triage is the act of prioritizing patients in order of severity and urgencies so the most people can survive. The medical staff evaluate the conditions, looking at who needs care immediately and who can wait a bit until resources are available. They may treat someone with a bleeding wound before the treat a simple bone fracture, for example.
Likewise, with a Triage Spending Plan, you identify those expenses that are the most urgent. Those that are due soonest, and are tied to services or products that are most critical to you. Then you look for critical items that can be paid later, and then other, non-critical items. In principle, looking at your expenses this way is straightforward, but doing it before you spend requires that you stop and think about each expense, and honestly determine:
Do I need this right now?
What happens if I don’t buy this right now?
What happens if I don’t pay this bill right now?
Can I buy this item or pay this bill at some point in the future without significant hardship?
One area where a Triage Spending Plan is most useful is managing intermittent expenses – those expenses that occur once or twice a year. Most budgeting applications treat these types of expenses in a very simple fashion. If you have an expense (like car insurance) of $800 due in 8 months, the app tells you to set aside $100 each month. But what if you also have a $200 expense due in two months? In that case, you may have to triage, setting aside money for that earlier expense, and then save for the $800 car insurance bill in the remaining six months before it is due.
When you get a windfall income like the stimulus check, do the same exercise. Where can you assign this money where it will do the most good for you, now and in the future? It may not be as simple as “pay the bill with the earliest due date,” or “pay the largest bill I have.” It may involve some sophisticated “time-phasing” to make sure you are prioritizing your expenses to your best advantage.
Whether you are facing challenges during this current crises or you have some cushion, whether your do it yourself or work with professional Cash Flow experts, take the time to craft a Spending Plan. It will help ensure you are spending on those things most important to you, taking care of your future while living the life you want to live today – or getting you on the road to that life.
Kevin Gibbons is a Cash Flow Planning Expert, the Vice President of The Savvy Life and co-author of the international bestseller Living The Savvy Life. For the past eight years, Kevin and Savvy Life Founder Melissa Tosetti have worked with over 625 individuals and families to create Spending Plans.
To learn about how Kevin and Melissa work with clients to create Spending Plans, visit The Savvy Life’s Home Page. If you’d like to learn about how they work with financial advisors and their clients visit: The Savvy Life Advisor’s Page.