Impact of the longest government shutdown in U.S. history
USA TODAY’s Washington bureau chief explains the impact of the longest government shutdown in U.S. history.
The longest government shutdown is over, but personal finances still have a long way to go, experts say.
Millions of Americans who lost paychecks, food assistance, and other government benefits quickly realized how vulnerable their finances were during a record 43-day government shutdown. Some took odd jobs, used credit cards or took out loans to keep paying their bills, and others lined up at food banks.
As the government reopens and money begins to trickle in again to those affected, that doesn’t mean their finances will automatically return to normal, experts say. Some Americans may have to catch up on late bills, pay off loans, or get out of debt again. In the meantime, experts said Americans should take the time to review their financial plans.
“The worst shutdowns were out of people’s control, but finances are in control,” said Stephen Connors, founder and president of Connors Wealth Management. “If you work hard, you can build up an emergency savings.” This will give you a more secure cushion in case another crisis or shutdown occurs.
The agreement to reopen government agencies limits the reopening of government agencies to the end of January unless a new agreement is passed. Therefore, experts say there is still a chance it will close again in the coming months.
What should Americans do first?
Experts say if you’re behind on your bills during the shutdown, pay them to keep your lights, water and heat running.
Then settle all your credit card debts and loans, they said.
If you take out a 401(k) loan, prioritize paying it off. Connors says repayment terms are typically five years, but the longer the money is out of the account, the more money you’ll spend in retirement because the compound interest you’d earn is lost.
Additionally, if you leave your employer for any reason, whether voluntarily or not, you typically must repay the loan immediately. If you fail to repay, it will be considered a withdrawal and you will be responsible for paying taxes and applicable penalties.
Once you’re back on track with on-time loan payments, look for ways to save money. Connors said a good place to start is by cutting out distribution services, streaming services and other monthly subscriptions.
Is before the holidays a good time to create a new budget?
Experts say the best time to start making new financial plans is before the typical year-end holidays.
Nearly half (47%) of those planning to spend on holiday gifts and travel expect to end up borrowing money, according to a survey of nearly 2,100 adults conducted Oct. 28-30 by the American Institute of Certified Public Accountants. But that doesn’t need to be the case, and shouldn’t be the case, advisers said.
Alicia Nguyen, a financial expert at World Financial Group, a multilevel marketing firm that sells financial and insurance products, said instead of deciding how much to spend, you should calculate how much you can save.
Nguyen said everyone should save 20% of their after-tax income for long-term savings and investments. Set aside those savings to pay your monthly expenses, then spend what’s left on gifts, she said.
How can people save while spending?
To keep your budget on track, consider these tips.
- spend your money wisely: Before you shop, Connors says, decide who you’re buying gifts for and set the appropriate proportions and amounts to spend on each person. If someone is not on your pre-determined list, think twice before purchasing.
- Use cash: “Using cash or a debit card can help reduce overspending because you can actually see the money leaving your account,” said Jonathan Morales, head of community banking at Chase. Cash “brings instant accountability. You can literally feel the money leaving your wallet, making it easier to stop before you spend too much.”
- Skip Buy Now Pay Later: “If you can’t buy it now, don’t ever buy it,” Connors said. “Buy now, pay later may offer better terms than a credit card, but you still have to pay it back, so you’re just extending the inevitable. If you can’t afford it, don’t buy.”
What should people do after the holidays?
Once the pressure of holiday spending is off, continue to increase your savings.
- Experts say if you don’t have any debt, it’s a good idea to save some of the year-end bonus or cash you receive. If your emergency fund is too small to cover three to six months of expenses, build it there, they said. Otherwise, consider investing in the market and giving it time to grow, Connors said.
- If you receive a gift card that you never use, you can sell it for cash and save or invest that money. According to WalletHub, Costco gift cards have the highest resale value at $87.57 for a $100 gift card. Walmart and Best Buy follow, each selling for $85.90, and Home Depot sells it for $85.50.
If you have fallen victim to your emotions and urges, you are not alone. According to an AICPA survey, one in four Americans who normally create a holiday spending budget admit that they probably won’t stick to it.
If you owe money on a credit card, the AICPA says:
- Plan to take advantage of year-end bonuses and cash gifts to pay off your balance as soon as possible.
- If you can’t pay off your balance, calculate how much you can pay each month and how long it will take to pay it off.
- If you have outstanding balances on multiple credit cards, pay as much as you can on the card with the highest interest rate each month and continue making minimum payments on the other cards until your balances are zero.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
