Are you eligible for the recently approved Economic Impact Payment of $1,400? If you are single and make under $75,000, you are eligible. Eligibility for couples is income under $150,000. Couples will be getting $2,800 while a family of four gets $5,600. This is a significant windfall for many people. The big question is how will you use this money? Here are a few suggestions for how to use the money to improve your financial situation.
- Pay off Debt
If you have credit card debt, this would be my first recommendation to pay off. With a potential interest charge at or above 20%, you will see a huge benefit in getting rid of this debt. For each $1,400 paid off, you will save another $280 of interest costs at the 20% rate.
- Increase your emergency reserves
People often build up credit card debt because they have not set aside money for emergencies. Consider adding these funds to your reserves and only use for a real emergency. (Which is not a vacation).
Add the money to your investment account. Using the historical return for the S&P 500 over the last 20 years year of 5.6%, each $1,400 saved could grow to $7,178 in 30 years. Not a huge amount but it all adds up.
- Have Fun
Are you already debt-free, have good cash reserves and a good savings rate? Consider a splurge and have some fun. It has been a tough year.
Giving to others always feels good too. There are still many groups struggling as a result of the pandemic. Helping them out is a great use of the funds. And even better, each person will get up to a $300 income deduction on their taxes when you file next year.