The longest government shutdown is behind us, but rebuilding personal finances is still ahead, experts said.
Millions of Americans who lost paychecks, food assistance and other government benefits quickly discovered how fragile their finances were when the government shutdown for a record 43 days. Some took odd jobs, used credit cards or took out loans to keep paying the bills, while others lined up at food banks.
The government’s reopened and money is trickling out again to those affected, but that doesn’t mean their finances automatically return to normal, experts said. Some Americans may have to catch up on late bills, pay back loans or whittle down debt again. While they’re doing that, Americans should take the time to review their financial plan, experts said.
“The worst shutdown was out of people’s control, but they can control their finances,” said Steven Conners, founder and president of Conners Wealth Management. “You can build up emergency savings if you’re diligent” so you have a cushier cushion if there’s another crisis or shutdown.
The agreement to reopen the government only keeps the government open until the end of January unless a new deal is passed. So, another shutdown is still possible in the months ahead, experts said.
What should Americans do first?
If you fell behind on bills during the shutdown, pay those off to keep lights, water and heat running, experts said.
Then, tackle any credit card debt or loans you took, they said.
Prioritize paying back a 401(k) loan if you took one. You generally have five years to pay it back but the longer the money is out of the account, the more it will cost you in retirement because you’ll lose any compounding that your funds would have gained, Conners said.
Additionally, if you leave your employer for any reason, whether by choice or not, you’ll usually have to repay the loan immediately. If you can’t repay, it will be considered a withdrawal, and you’ll be responsible for taxes and any applicable penalties.
Once timely loan repayments are back on track, look for ways to save money. A good place to start is cutting out delivery and streaming services and other monthly subscriptions, Conners said.
Are before the holidays a good time to start a new budget?
Before the typical year-end holiday spending spree is a great time to set up a new financial plan, experts said.
Nearly half (47%) of those who plan to spend on holiday gifts and travel anticipate going into debt, according to an American Institute of CPAs survey of nearly 2,100 adults between October 28 – 30. But it doesn’t have to be and shouldn’t be that way, advisers said.
Instead of deciding how much to spend, calculate how much to save, said Alicia Nguyen, a finance professional at World Financial Group, a multi-level marketing company selling financial and insurance products.
Everyone should save 20% of their after-tax income for long-term savings and investments, Nguyen said. After setting aside those savings and paying monthly expenses, spend only what’s left over on gifts, she said.
How can people save while spending?
Consider these tips to keep your budget on track:
- Appropriate your money: Before shopping, determine the people you’re buying a gift for and appropriate a percentage or dollar amount to spend on each person, Conners said. If someone isn’t on your predetermined list, think before you buy.
- Use cash: “Using cash or a debit card can help keep things in check because it’s harder to overspend when you can actually see your money leaving your account,” said Jonathan Morales, head of community banking for Chase. Cash “offers instant accountability. You can literally feel the money leaving your wallet, and that makes it easier to pause before overspending.”
- Skip Buy Now Pay Later: “If you can’t buy it now, don’t do it at all,” Conners said. “Buy now pay later may offer better terms than a credit card, but it’s still just extending the inevitable because you have to pay it back. If you can’t afford it, don’t buy it.”
What should people do after the holidays?
Once the pressure of holiday spending is over, continue to build savings.
- If you don’t have debt, save some of your yearend bonus money or cash gifts you may have received, experts said. If your emergency fund is too small to cover three to six months of expenses, put it there, they said. Otherwise, consider investing it in the market and give it time to grow, Conners said.
- If you receive a gift card you’ll never use, you can sell it for cash and save or invest the money. According to WalletHub, Costco gift cards have the highest resale value at $87.57 for a $100 gift card. Walmart and Best Buy followed, each fetching $85.90, and Home Depot can get you $85.50.
If you fall victim to emotions and impulse, you’re not alone. One in four Americans who usually make a holiday spending budget admit they probably won’t stick to it, the AICPA study said.
If you owe money on your credit cards, AICPA said:
- Plan to pay off the balance as quickly as possible, maybe with some of your yearend bonus money or cash gifts.
- If you can’t pay off the balance, figure out how much you can pay each month and how long it’ll take to do it.
- If you have unpaid balances on several credit cards, pay as much as you can on the card with the highest interest rate each month until your balance is zero, while still paying the minimum on your other cards.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.