As many of the helpful provisions from the CARES Act, including the additional $600 in weekly unemployment benefits from the federal government, draw to a close, it’s tough to focus on anything but the short-term financially. But tough doesn’t have to mean impossible.
Even if you can’t save at the same rate that you could before the pandemic — it may be possible to do something for your future by keeping tighter control over your day-to-day spending. And, if you still have your job, spending so much time at home (i.e. not commuting, not eating out, not traveling) may free you up to do even more.
Here are the elements to focus on.
Where Is Your Money Going Now
The best place to start, no matter how much money you’re working with, is your budget, says Lynn Ballou, Senior VP and Partner at EP Wealth Advisors, LLC. You want to know how much you have coming in, how much is going out, where is it going and how has that changed since before the pandemic. You may find that you’re spending less than you did previously — but what are you doing with the excess. If you don’t move it into a separate savings account, the chances that you’ll spend it go up measurably. Look also at how you feel about the expenditures you’ve made over the past few months. Are they things you value? If not, they’re the first things to trim.
Reduce Your Interest Rates
If there’s a silver lining to this period of pandemonium we’re living through, it’s that interest rates are at rock bottom. So what should you refinance? Well, maybe everything. Refinancing your mortgage is a great way to go, says Ballou, especially after the average interest rate on a 30-year home loan hit the lowest ever at 2.98% last week. Swapping into a 15-year versus a 30-year mortgage can save you big bucks in the long run, which means there will be more for you to save down the line. But it’s not just your mortgage: Car loans, student loans and reverse mortgages, can all be refinanced. And if you’re paying off credit card debt, look for a card with a lower interest rate to save there as well.
Can’t Contribute? Try Not To Withdraw
Yes, continuing to make retirement contributions is always the best thing you can do, but if that isn’t a reality, pausing contributions is a much better option than choosing to withdraw or borrow the money you’ve already saved. This is true even though penalties for withdrawing money from 401(k) and other retirement accounts have been eliminated for withdrawals up to $100,000 — and the amount you can borrow has been doubled, says Marcy Keckler, VP of Financial Advice Strategy at Ameriprise Financial. The problem with pulling money out is not just that you may have to pay taxes (although the CARES Act gives you a mulligan on that if you repay the funds within three years) it’s that while the money is out it’s not growing. Even missing out on a handful of the best days in the market over a lifetime of investing can cost you significantly.
Keep Your Emotions At Bay
Finally, the stock market is predictably unpredictable, especially recently. Don’t let the day-to-day up and downs scare you into changing your strategy, Keckler says. She adds, “What’s happening today in the markets looks different from what happened a few weeks ago. And what is to come will likely look different as well. Stay calm, and don’t let your emotions control your financial decisions.”
With Rebecca Cohen