By Vincent R. Birardi, CFP®, AIF®, Wealth Advisor at Halbert Hargrove.
The CARES Act, the federal government’s $2.2 trillion economic relief package passed in March, has provided some much-needed financial support to millions of American households impacted by COVID-19. Several of its core provisions – including increased unemployment benefits as well as mortgage / rent payment abatements – are due to expire at the end of July.
Barring either an extension of these provisions or the passage of new or similar ones, those who have gotten financial relief from CARES would be well served to review their personal finances to address any negative impacts.
Here are five suggestions for coping with the stimulus “cliff” – the possible end of these support programs:
- Revisit your monthly budget and rein in any discretionary expenses to align with any drop in income. There may be opportunities to spend less going forward – ordering fewer takeout meals and doing less online shopping, for example.
- Pad your emergency savings account as ongoing protection. A general rule of thumb is to have at least 3-6 months of your average monthly expenses held in cash in a savings account. Consider increasing this amount further so you can absorb any future decreases to your income.
- For mortgage holders and renters: Engage with your lender / landlord to see if they can provide more flexible repayment terms to avoid foreclosure or eviction. Many lenders and landlords are being accommodating, offering more wiggle room for people to make their monthly payments.
For mortgage holders, consider a refinance! Rates are currently at historic lows.
- Move up funding your retirement (401ks/IRAs) and college savings (529s) plans for 2020. Consider making your full-year retirement savings account contributions earlier while you have additional income. Reminder: The 2020 annual contribution limit for 401ks is $19,500 (with an additional $6,500 if you’re age 50 or over) and $6,000 for IRAs (the limit is $7,000 if you’re 50 or over).
- For those who recently filed their 2019 taxes (filing deadline was July 15th!), consider using any refund you receive to achieve any or all of the above.
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