I’m a new mom. My baby was the silver lining in what was otherwise a dumpster fire of a year. His warmth and laughter made all those hours of lockdown so much brighter.
And thanks to the passing of several covid relief bills, his birth in 2020 netted our family some serious tax funds. A good chunk of the tax money we received from the first two stimulus packages went to paying down the hospital bills we incurred. Even though we were prepared and had much of the birthing costs prepaid, an emergency c-section and lengthy hospital stay resulted in more bills than we had anticipated.
Another good chunk of our tax money went to our house fund. We are currently renting and wish to move into a bigger place suited for our growing family.
Now, with the most recent stimulus funds issued at $1400 a person, including dependents, I have found myself trying to figure out the best way to spend this money. Now sure, if my child was older and/or had earned income in 2020 then I’d likely be giving the money to him. Or at least setting up a checking/savings account in his name. But since my son is just a baby, it is up to Mommy and Daddy to figure out the best application of this money.
Should I pay off the medical bills?
Right now this debt is sitting on a low-interest credit card, which I know, is not the best place to keep it. We only recently got all of the bills sorted out, thanks to some insurance billing issues. Earlier this year I had been considering a balance transfer to pay off the debt. Once I realized how much of a tax refund we were getting, I thought it wise to apply some of this towards the medical debt first, before executing a balance transfer. Doing so would save me money on the 3% balance transfer fee.
This debt was paid down only a few weeks ago with the tax return money and already we have these additional stimulus funds that we can put towards paying it off. Now the question becomes do I pay it off entirely or do I pay the balance down and save a bigger chunk of the stimulus money for something else?
Should I add to the house fund?
While our house fund is growing, we are nowhere near the 20% down value we’d like to be at. I’m seriously beginning to wonder if that goal is even practical. Not only would saving up the full 20% push back buying a house several years, but it also seems a waste to have that money just sitting in a savings account.
Adding this round of stimulus money to our house fund could get us to our goal quicker. But low-interest rates have made the competitiveness in our local housing market insane. So we might be better off waiting a year or several before making that purchase.
Should I buy baby gear that I know we are going to need?
Babies have a lot of stuff, stuff that they quickly grow out of. Clothes, toys, and beds are just some of the things babies cycle through in a matter of months. And if you didn’t already know, adding the word “baby” to just about any product, triples the price.
Considering how much baby gear costs, I could divert some of these funds towards the purchase of baby gear. Stuff like a larger car seat that I know we’ll eventually need or baby-proofing the apartment since baby will be crawling/walking soon. I could even look at buying furniture for his future room; right now he rooms with us having just a crib and changing table. I could even use some of the funds to stock up on formula and diapers.
But if I purchased these big-ticket items now, I could miss out on future sales. It also might be hard to find space to store extra furniture that is not yet being used. Besides, I’m not sure I want to spend a huge chunk of cash on furniture and gear that baby is just going to grow out of in a few years.
Should I start a 529 account?
He’s not even a year old and college seems so far off right now, but I’ve had the chance to play with some of the college expense calculators and the results are rather frightening. “College” is another one of those words that dollar signs to a price tag.
Starting a 529 plan is definitely something I want to do. My parents waited until I was in high school to start one for me and it ended up not even covering a full year’s tuition. I don’t want to put my son in that situation.
But at the same time, I don’t want to necessarily give him a free ride either. I would like to strike a balance between having saved up enough money to pay a large chunk of his college costs while leaving him responsible for the rest.
And really, I don’t want to just throw a chunk of change in a fund right now without a plan on how to contribute to it over the many years to come.
So, how am I going to spend this money?
Looking at all of this, I don’t think there is any one right course of action. Yes, paying off debt is important, but not necessarily more important than buying formula or building up our savings.
I think what I am likely to do is split the use of the money. For three people, me, hubby, and baby, the stimulus total comes out to $4200.
I’ll probably use just over a third of it ($1800) to pay off the hospital bills. Paying it off now will save me that 3% balance transfer fee. Plus I can take the money I would have put towards paying off each and put it in savings.
Half of the $4200 total will go towards our house fund. This fund earmarked for providing a down payment on a house. It will also pay for other moving-related essentials. This includes hiring movers, completing home inspections, utility deposits, minor home renovations, and purchasing any furniture we might need.
The remaining $300, which will be split between hubby and I, will likely go to stocking up on baby formula, diapers, and other household essentials. Though I imagine we might take a little off the top to treat ourselves. Perhaps a meal out, a new toy for baby, or another new kitchen gadget that we don’t need.
I think I’ll wait on opening the 529 account. I do want to start one, but I have plenty of time left. I’m also thinking that the new proposal for issuing the child tax credit as a monthly payment might be a great way for me to set up regular contributions to a college savings account.
Not sure what I’ll do if they issue additional stimulus funds this year, but I think I’ve got a pretty good idea now of what to do with this round of funds.
