How Covid Stimulus Checks Are Affecting Family Finances
The Covid-19 pandemic has put a huge strain on family finances for so many Americans. In an effort to provide some relief, stimulus checks have been dispersed to help families get back on their financial feet. Below are some ways these stimulus checks have had an impact on consumers’ wallets.
How Americans Are Spending Their Stimulus Check
If you are wondering how most Americans are spending their stimulus checks, it is not on some frivolous big purchase. Two thirds are using them for monthly bills and groceries. Now, these stimulus checks won’t change anyone’s life overnight but they can make a meaningful difference to your family finances, particularly if you invest the money or put it towards savings.
1. Credit Card Debt
With the average American carrying plenty of debt and only paying the minimum each month, balances are barely going down. If you were to take that $1,400 stimulus check and put it towards your credit card debt, your minimum payment due each month would go down. The key is to continue to make the original monthly minimum payment that you were before.
For example, with a 16% APR and a $5,000 credit card balance, you are looking at a monthly minimum payment of $150. By putting your stimulus check towards that balance, you lower the monthly payment to $108. If you continue to pay that original $150 per month, you will pay off that card 15 months sooner and save about $900 in interest. After the credit card is paid off, you will have that money to put towards your other financial goals. Just make sure to not close the card once it has been paid off. Keeping it open helps you maintain a good credit score.
2. Establish an Emergency Fund
When it comes to family finances, having an emergency fund in place can mean the difference between financial ruin and staying afloat for some people. If you have any high interest debt paid off, put the stimulus checks towards an emergency fund. The goal is to save at least three to six months worth of monthly expenses. When that unexpected expense pops up, you will be so glad you did.
3. Invest the money
If you have that emergency fund stocked and the debt is paid off, putting that stimulus money towards investments is a good idea for your family finances. Focusing on S&P 500 index funds will put your money into investments with the top 500 of the largest companies (think Apple and Amazon). Invest that money now and you will have a nice chunk of change down the road. This will not generate money for you in the present. This is about the long term and investing now will help kickstart a lifelong investing habit. This is one of the best ways you can invest in yourself.
4. Fund a home purchase
These stimulus checks are not going to get you into your dream home but if you are looking to purchase and you are looking for something smart to do with the money, saving for a down payment on a home is not a bad idea.
5. Contribute to a health savings account
If you are planning on a major medical expense coming your way, putting the stimulus money towards a HSA makes sense for family finances. Especially if you have a high deductible, which many health plans do. If you have a catastrophic healthcare plan, you are looking at thousands in deductible. This money will at least help cover some of it.