9 Money Moves You Can Make Right Now
As many states are opening up, it’s important to keep your future in mind. One of the ways to plan for your future is by making sure that your money takes care of you. You can watch my video on this topic here.
File for Unemployment
(if applicable)
Many people have lost their jobs during this time period and it’s important to know that the government is supporting the people through multiple ways.
At first with unemployment, I thought that you had to take any job (like if I’m an engineer, I have to take the first job that I get even if it doesn’t suit my skills) but that’s not how unemployment works. It’s more about suitable work. So I could take a long time to look for an engineering job but that’s okay because that’s a suitable line of work for me.
It also provides a bit more financial security for individuals while they are job hunting so you don’t have to worry about money while looking for a suitable job.
Also, because of the current situation, the government also increased the amount of unemployment to include an additional 600$ per week. So whatever you had in unemployment + that extra 600$. This ended July 31st but an executive order has come out that has increased unemployment benefits by $300 a week until December 31st of this year.
Check on Your Stimulus Check
In May, many people received stimulus packages. This was around $1,200 that phases out after 75,000$ of adjusted gross income for single filers. For those with kids, it’s an additional $500 per child / dependent under the age of 17. This obviously excludes college students who filed as dependents in 2018 / 2019.
There are talks that are almost finalized about the next round of stimulus. Unfortunately, this still doesn’t include college students who file as dependents because stimulus check only applies for dependents who qualify as a child in the Child Tax Act.
The earliest resolution for the talks for the next round of stimulus checks will be September 4th. You might see your stimulus check come trickling in anytime in 2020. If you still didn’t get your stimulus by the end of this year, you would be getting an adjustment after you file your 2020 taxes in 2021.
You can also check the “Get My Payment” option on the IRS website.
Make Sure You Have Insurance
During an emergency, it’s good to know where to go and how to get help.
In case that you were just laid off, you should check with your employer to see if they offer COBRA. If COBRA isn’t offered, you can visit healthcare.gov to see what options are available for your state. Although this isn’t ideal, at least it covers you for a bit which is better than not having insurance at all.
If you already have insurance, it’s a good time to take a look at what is covered. If you have more bandwidth, you can also look into HSA’s and FSA’s.
Save Up in Case of an Emergency
If you’re able to, try to save up for 3 - 6 months worth of living expenses. This should cover if anything bad were to happen in terms of like a medical emergency or if you were to lose your job. If 3 - 6 months is not possible, make sure to at least save up to $1000 in your emergency savings.
Your emergency fund should rest in a high yield savings account. There are two parts to a high yield savings account. The first part is the savings account which generally only let you take money out a maximum of 6 times a month. But, they also pay interest either monthly, quarterly or annually. Those are the two main differences between a savings account and a checking account.
Now, what sets a high yield savings account from a normal savings account is the “high yield” part. This part is where the interest rate is concerned. Most banks offer savings accounts with 0.01% APY, which is a very small amount per year. There are many online savings accounts that earn more than that.
As of now, Marcus by Goldman Sachs, American Express and Ally Bank (one of the most popular ones) have 0.8%. Many robo-advisors also have high yield savings accounts, you can do more research on which one is the best for you.
Start an IRA
An IRA is a tax advantaged account, which is a formal way to evade taxes (haha, just jokes). In a normal investment account, you pay taxes twice - once on the money you’ve earned and then again on the money you’ve earned in your investment account, meaning realized gains. Say I work and I get paid $200, then I get taxed $26 leaving me with $174. Now I take this money and I buy AAPL and it’s at $174 and I now sell it at $400. I’ve made $226 which now gets taxed.
Now this is a simple, simple example. There are a bunch of other stipulations but I just want to illustrate my point - you have to get taxed on your income AND how much you make on the stock.
Now here is where an IRA works its magic - you only get taxed once. Either on your income or on your gains. Of course, there’s a limit to how much you can put in there (6000$ for individuals). But that lowers the amount of tax you have to pay overall. There are two forms of IRA, the Roth and Traditional. These are defined by when you pay taxes on the money you put in.
A traditional IRA is where you pay taxes on everything at the end. So you can put your money in now and you don’t get taxed on that money; but when you take it out at retirement, your income for that year will include whatever you take out of your traditional IRA.
As for Roth IRA, you pay taxes on your income now so all of that money you put in counts in your adjusted gross income this year. But you don’t have to pay money on any of the money you make in your Roth IRA ever again.
Now you’re probably wondering why is this so darn complicated and why can’t I just keep money in my bank account? Well, the same money you have right now is going to be worth less in the future due to various reasons like inflation. And if you’re saving your money, especially for retirement, you want to be compensated for postponing consumption, since money for the future cannot be spent right away. I hope that makes sense, like now I have $100 to spend, I could invest all of it and get like maybe $108 next year (8% annual). But because I can’t spend that $100 now, I’d want to be paid to spend that money later. You know?
If you don’t want to spend time picking stocks, you can use robo-advisors like Betterment, Wealthfront, etc. Otherwise, if you’re feeling frisky, you could try Robinhood or Charles Schwab.
Readjust Your Budget
Budgeting is one of the most important things for your financial security and after eating in for so many months, it’s natural to want to go out and support local businesses. But make sure you are realistic about how much you can afford and keep track of how much you’re spending.
In the most general terms, budgeting is about allocating money to places that you need / want them and making sure you have enough to cover when you do need the money. There are many apps that can help you keep track of your budget like Mint and YNAB. Or if you’re meticulous, you could make your own spreadsheet and separate out categories.
Here’s the thing, I don’t think you should feel guilty for spending money, but I think it’s important to know what you’re sacrificing/giving up when you overspend in a category.
Just as a concrete example: before, I ate out a lot. Sometimes, I would spend upwards of $400 on dining out every month. But, I would have only budgeted $200 for dining out. Every month I went over my dining budget, I would always have to take money out of my clothing budget. It was easier to dip into these more “frivolous” funds, since all of my savings goals were in HYSAs which made it just hard enough for me to not take it out to supplement my dining out.
As things slowly open up, I’m going to keep my grocery budget the same but budget $150 for dining out since I’ve been consistently spending around $100 a month. I don’t want to get to $200 yet because lifestyle inflation is still a real thing.
My last thoughts on this subject is to plan your money so that you can USE it.
Taking Advantage of Temporary Relief
(if applicable)
Because of the current situation, many banks and lenders have a lot of relief efforts to get everyone back on their feet. Some of these programs include delayed payment and waived fees for student loans, credit cards, mortgage, etc.
Federal student loans are already automatically suspended until September 30 and interest rates are set to 0%. That means after 9/30, the amount you still owe will be the same as when you made your last payment.
Before missing a payment for credit cards, make sure you call and check with your lender to see what options you have. They are very forgiving right now.
Investing in Yourself
Many people think saving up and investing for retirement is enough but I don’t think it is. Some great ways to start include picking up a new hobby - like art classes or reading new books. I personally have been researching side businesses and ways to make passive income that isn’t directly tied to my job.
It’s always important to know your worth and what you bring to the table even if obstacles come your way. I think investing in yourself is the best way to make sure you never undervalue yourself.
Be Confident!
The last thing I have for you all is to be confident. I spent years being really scared of how much money was in my bank account (especially college).
At the end of the day, money is a tool to get where you want. It’s important to make money work for you rather than let it shackle you. You are the one that’s in control.
I hope these tips have been helpful for you. I wish you success with planning your future! :)
