Did you wake up on St. Patrick’s Day with a higher balance thanks to the $ 1,400 Stimulus Check? If so, Dave Ramsey has a message for you: You really don’t need this check.
Ramsey was criticized in February for his comments on Fox News. As the personal finance radio host said, “I don’t believe in a stimulus check because if $ 600 or $ 1,400 changes your life, you’re pretty nuts,” said Ramsey. “You have other problems.”
Of course, it’s easy for a multimillionaire like Ramsey to ignore how much money is extra money when you’ve lost your job or are living on paycheck to paycheck. Here are five ways you can use your $ 1,400 stimulus check to transform your life.
5 life changing ways to spend your stimulus check
The following five strategies won’t change your life overnight. They are not going to give you the instant gratification that you would get from a big purchase. But they can make a meaningful difference, especially when they inspire you to start a new habit, such as: B. Invest or save a percentage of your monthly income.
1. Pay off credit card debt
The average credit card will cost you more than 16% interest per year. If you pay the minimum monthly, usually between 1% and 4% of your debt, you will find little stress on your bankroll.
When you’ve made a one-time payment of $ 1,400 for your credit card debt, lower your monthly minimum. But this is where your stimulus check becomes a crucial factor: you make at least the same monthly payments that you made before you paid the additional $ 1,400.
For example, let’s say you have $ 5,000 in credit on a card that has an annual interest rate of 16%. Your minimum monthly payment is 3% of your balance or $ 150.
You reduce your balance to $ 3,600, so your minimum payment drops from 3% to $ 108. You keep paying $ 150. That means an additional $ 42 goes to the principal, not the interest.
You would be debt free 15 months earlier and save nearly $ 900 in interest. You will then have an additional $ 150 free to use to meet your other financial goals.
Once you have paid out your balance, leave the account open. Having open credit accounts can help you maintain good credit. This brings us to another piece of advice from Dave Ramsey that you should ignore.
2. Set up an emergency fund
You don’t realize how life changing an emergency fund is until you actually have an emergency. However, building a three to six month emergency fund can take years, especially if you’re living from paycheck to paycheck.
A sudden injection of $ 1,400 (or more if you have loved ones) could be a great start to your emergency fund. Even if you can only afford to add a few dollars a week in the future, you have a buffer against the unexpected. That $ 1,400 could keep you from falling behind on rent if you lose your job or avoid a surprise medical bill being charged to a credit card.
3. Invest in an S&P 500 Index Fund
With S&P 500 index funds, you automatically invest in 500 of the largest companies in the US, including Apple, Amazon, Facebook, Johnson & Johnson and Disney. If you had invested $ 1,400 in an S&P 500 index fund 30 years ago, you would have over $ 22,000 today.
Will $ 22,000 Change Your Life? Probably not, although it could certainly turn into a nice boom in retirement planning. But the real magic comes when it triggers a lifelong investment habit. If you’ve only added $ 100 a month for 30 years, you could have over $ 226,000 if you had typical annual returns of just under 10%.
Note that investing your stimulus check is only a good move if you have your bills under control and no credit card balances or other high-interest debt like payday loans. You should also have an emergency fund before investing. The stock market can be volatile in the short term. Without savings, you risk losing money when you have to cash out your investments as stocks go down because you cannot afford surprise costs.
4. Put it towards your deposit
No, an additional $ 1,400 won’t get you your dream home. However, in most of the real estate markets in the United States, this is a highly competitive seller market. When you’re trying to buy a home, every extra dollar you can make for a down payment or money earned (a deposit you make when you sign a contract) makes your offer more competitive.
5. Increase your HSA contributions
If you have a health savings account, you also have a high deductible health insurance plan. In 2021, the minimum deduction under these plans is $ 1,400 for individuals or $ 2,800 for families. That means you usually have to pay at least $ 1,400 or $ 2,800 for families before your health insurance begins, although some preventative measures like an annual check-up are 100% covered before your deductible.
Conveniently, you will likely get at least $ 1,400 if you’re single or $ 2,800 if you’re married on the third stimulus check. Using this money to increase your HSA contributions is a wise bet so that you can cover your deductible when you have a high medical expense.
Robin Hartill is a certified financial planner and senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advisory column. Send your tricky money questions to [email protected].