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- With the end of the $600 per week unemployment benefit last month, you may be facing an uncertain financial future.
- Aside from the provisions of the CARES Act, there are other government benefit programs that can help you right now, including SNAP, TANF, and WIC.
- You can also consider how much of a grace period you have on your bills to prioritize certain payments and buy yourself enough time to gather the money you need.
- I would not suggest tapping your retirement funds unless you have absolutely no other options.
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The pandemic of 2020 has created nothing but chaos on all fronts. Whether your concerns are focused on how COVID-19 poses an extreme danger to our seniors, unprecedented unemployment rates, the feasibility of students learning full-time online, or what the long-term impacts of government-stimulated growth might look like, there’s no shortage of reasons to feel stressed these days.
Things might look even worse if you are one of the millions of workers negatively affected by the recent reduction in unemployment benefits.
Despite the potential unpredictability and inconsistency you might face in your financial life right now, there are actions you can take to make your personal finances more flexible and better suited to ride out this rough period.
Here are three possible solutions to focus on ASAP:
Over the past few months, the government stimulus package — the CARES Act — that passed in March has dominated headlines.
While programs such as the Pandemic Unemployment Assistance (PUA) that included an additional $600 per week in unemployment benefits and the Economic Impact Payments that gave people cash payments of $1,200 were great, the former ended on July 31 and the latter was a one-time deal.
However, even if that assistance is now gone, there are many other social benefit programs that were already in place before the pandemic — and you should take advantage if you’re entitled to do so.
Don’t let your pride get in the way of accepting help if you need it. As my grandmother used to say to me, “This is no time to be acting like a big shot.”
The social programs within your state could be a financial lifesaver if you are between jobs or if the PUA funds were how you previously made ends meet. While we wait for Congress to hash things out regarding an additional stimulus package, some options for assistance include:
- Supplemental Nutrition Assistance Program (SNAP)
- Temporary Assistance for Needy Families (TANF)
- Women, Infant, and Children (WIC) Program
You may also be eligible for the new Pandemic Electronic Benefit Transfer (P-EBT), which assists households who lost their free or reduced-price school lunch due to COVID-19. This can be extremely important as schools are beginning to reopen around the country. Depending on your state, you could also get additional assistance with healthcare coverage, childcare, and utility services.
Placing bills and savings commitments on autopilot is usually a great budgeting move to ensure you don’t miss due dates or feel tempted to spend instead of save.
But this only works when you have a reliable, consistent income — and without that, automated transfers and bill payments may only add to your stress or even leave you with overdrafts and added fees.
As you begin to juggle what bills to pay, utilize your grace periods and know when each particular creditor will be reporting late payments to the credit bureaus.
Your mortgage, for example, will usually be due on the first of the month. But loan payments usually come with a 15-day grace period, meaning you have 15 days before your mortgage company will assess a late fee. Mortgage companies will not usually notify the credit bureaus of your tardiness until you are 30 days late. Check with your lender to confirm.
Obviously, you do not want to make it a habit of putting off bills; a mortgage payment late fee can be up to 5% of your monthly payment. But taking advantage of a grace period while you’re temporarily without work or full income may buy you the time you need to catch up on other bills first.
If you don’t have adequate cash reserves to get you through this rough patch, you might feel tempted to withdraw from your retirement accounts.
I highly recommend fighting this urge and avoiding making any early withdrawals from your retirement accounts — even with all the new exceptions on penalties granted by the CARES Act.
While the Act allows you to make penalty-free withdrawals up to $100,000 in 2020 and spreads any tax liabilities for those withdrawals out over three years, other forms of untaxed compensation may only magnify tax issues down the road.
If you received unemployment in 2020, that is taxable income. With most recipients receiving between $900 and $1,000 a week through the PUA program that ended July 31, this can quickly turn into a significant tax liability should you add withdrawals from a retirement plan.
And even with the new exceptions, there’s a big opportunity cost when you take money out of your long-term investments because it means those funds are no longer earning compound interest for you.
I understand this can be a hard decision if you’re in survival mode — but at the very least, withdrawing from your retirement account should be an absolute last resort, and certainly not the first place you go when you need extra cash.
There’s no denying that this is a hard time for almost everyone. Hopefully, these strategies can help you navigate this period, but even more important than specific financial tactics is staying determined to get to the other side of this situation.
Making it through a time like this isn’t easy, and you must continue to fight as your best and brightest days are still ahead of you.
Malik S. Lee, CFP, CAP, APMA, is a financial expert with nearly two decades of experience and is the founder of Felton & Peel Wealth Management.