Ignore Dave Ramsey. 5 Ways Your $1,400 Stimulus Check Can Change Your Life

Dave Ramsey wears a headset as he produces a broadcast show in his home studio.
Personal finance guru Dave Ramsey in his broadcast studio in Brentwood, Tenn., in 2006. “I don’t believe in a stimulus check because if $600 or $1,400 changes your life you were pretty much screwed already,”  Ramsey said on Fox News in February. “You got other issues going on.” Mark Humphrey/AP Photo

This post refers to stimulus checks issued in March 2021. For the most up-to-date info, check out our recent tax articles.

Did you wake up on St. Patrick’s Day to a higher bank account balance courtesy of the $1,400 stimulus check? If so, Dave Ramsey has a message for you: You really don’t need that check.

Ramsey faced criticism for his comments on Fox News in February. Here’s what the personal finance radio host said: “I don’t believe in a stimulus check because if $600 or $1,400 changes your life you were pretty much screwed already,”  Ramsey said. “You got other issues going on.”

Of course, it’s easy for a multimillionaire like Ramsey to ignore just how big a deal extra cash is when you’ve lost your job or you’re living paycheck to paycheck. Here are five ways you can use your $1,400 stimulus check to change your life.

5 Life-Changing Ways to Spend Your Stimulus Check

The following five strategies won’t change your life overnight. They won’t give you the instant gratification you’d get from making a big purchase. But they can make a meaningful difference, particularly if they inspire you to start a new habit, like investing or saving a percentage of your monthly income.

1. Pay Down Credit Card Debt

The average credit card costs you more than 16% each year in interest. By paying the monthly minimum, usually anywhere from 1% to 4% of what you owe, you’ll barely make a dent in your balance.

If you made a one-time $1,400 payment toward your credit card debt, you’d lower your monthly minimum. But here’s where your stimulus check becomes a game-changer: You keep making at least the same monthly payments that you did before you paid the extra $1,400.

Let’s suppose you have a $5,000 balance on a card with a 16% APR. Your monthly minimum payment is 3% of your balance, or $150.

You reduce your balance to $3,600, so your 3% minimum payment drops to $108. You keep paying $150. That means an extra $42 going toward the principal, not the interest.

You’d be debt-free 15 months sooner and save nearly $900 on interest. You then have an extra $150 freed up to put toward your other financial goals.

Once you’ve paid off your balance, keep the account open. Having open credit accounts helps you keep a good credit score — which brings us to another piece of Dave Ramsey advice to ignore.

2. Establish an Emergency Fund

You never realize just how life-changing an emergency fund is until you actually have an emergency. But a three- to six-month emergency fund can take years to build, particularly if you’re living paycheck to paycheck.

A sudden cash infusion of $1,400 (or more if you have dependents) could be a great jumpstart for your emergency fund. Even if you can only afford to add a few dollars a week moving forward, you’ll have a buffer against the unexpected. That $1,400 could keep you from getting behind on rent if you lose your job or help you avoid charging a surprise medical bill to a credit card.

3. Invest It in an S&P 500 Index Fund

With S&P 500 index funds, you automatically invest across 500 of the largest corporations in the U.S., including Apple, Amazon, Facebook, Johnson & Johnson and Disney. If you’d invested $1,400 in an S&P 500 index fund 30 years ago, you’d have over $22,000 today.

Will $22,000 change your life? Probably not, though it could certainly make for a nice retirement savings boost. But the real magic happens if it kickstarts a lifelong investing habit. If you added just $100 a month for 30 years, you could have over $226,000 if you earned typical annual returns just shy of 10%.

Note that investing your stimulus check is only a good move if you’re on top of your bills and you don’t have a credit card balance or other high-interest debt, like payday loans. You should also have an emergency fund before you invest. The stock market can be volatile in the short term. Without savings, you risk losing money if you have to cash out your investments when stocks are down because you can’t afford a surprise expense.

4. Put It Toward Your Down Payment Fund

No, an extra $1,400 isn’t going to score you your dream home. But in most real estate markets across the U.S., it’s a highly competitive seller’s market. If you’re trying to buy a home, every extra dollar you can put toward a down payment or earnest money (a deposit you put down when you enter into a contract) will make your offer more competitive.

5. Boost Your HSA Contributions

If you have a health savings account, you also have a high-deductible health plan. In 2021, the minimum deductible under these plans is $1,400 for individuals or $2,800 for families. That means you’ll typically have to pay at least $1,400 or $2,800 for families before your health insurance kicks in, though some preventative care, like an annual checkup, is covered at 100% before your deductible.

Conveniently, you’ll probably get at least $1,400 if you’re single or $2,800 if you’re married from the third stimulus check. Using that money to increase your HSA contributions is a smart bet so you can cover your deductible if you have a major medical expense.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].

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