COVID-19 Financial Tips To Weather The Storm

We're living in difficult times and treading in uncharted waters. As with anything in life, there comes a time when you have to make adjustments. Now is that time for your personal finances.

For some, COVID-19 has brought financial struggles and uncertainty. For others, COVID-19 has brought financial growth and opportunity. No matter what side of the spectrum you're on, the following tips will help you achieve your financial goals even in times of uncertainty.

Tip #1: Re-adjust your budget

Times have changed and so should your budget. The traditional 50/30/20 split may need to be adjusted to fit your current situation.

We're all making adjustments and your budget should be doing the same. When creating a new budget be sure to consider all aspects. This includes putting money aside for an emergency fund, saving for retirement, and non-discretionary expenses such as mortgage payments. You may also consider cutting some discretionary expenses, such as cell phone bills, gym membership, etc. Consider all income and expenses before finalizing your budget.

Tip #2: Pay Down Credit Card Debt

The Federal Reserve lowered several interest rates which directly impact the prime-rate. The prime-rate is a key rate used to determine the APR charged for common lines of credit, including credit cards.

Are you only paying the minimum balance on your credit card? Now is the time to rethink that. If you still have the means to do so, now is a great time to make some head way when it comes to lowering and possibly paying off your credit card debt. Due to the Federal Reserve lowering interest rates to zero, the variable prime-rate has seen some reduction as well. Look over your credit card statement to review any changes to your credit cards APR. If your rate has been lowered, you may notice a reduction to your minimum balance requirements. Take advantage of this opportunity to reduce the amount of interest paid on your current balance.

Tip #3: Pay down student loan debt

Student loan interest and payments have been suspended from March 13, 2020 through September 30, 2020. This suspension can serve as an opportunity for tax-deductible interest payments.

We all know the one thing that follows us the most, is the dreaded Student Loan debt. As put forth in the CARES Act, federal student loan payments and interest has been suspended. During this period no interest is accumulating but previous unpaid interest remains. Paying on this interest could have the potential to create a great tax-advantage and provide some debt relief. Keep in mind that up to $2500 in student loan interest payments are tax-deductible.

Tip #4: Consider Tax-Harvesting on Investments

Depending on your estimated yearly income, tax-harvesting could serve as a good tax-planning technique.

Should you pay taxes on your gains or on your losses? Tax-harvesting is a tax planning technique used by those looking to capitalize on their losses or gains. If you are looking to lower your current year taxes, consider selling your losses as you can deduct up to $3,000 in losses per year. If you are expecting your tax bracket to increase next year, now maybe a good time to sell your winners to pay current tax rates and avoid a larger tax bill down the road.

Tip #5: Consider ROTH Conversions

Much like tax-harvesting, a ROTH conversion maybe a good tax planning technique during a down economy.

ROTH conversion is a powerful tool. It allows you to convert after-tax dollars to pre-tax dollars. Does a ROTH conversion make sense for you? One reason a ROTH conversion may make sense for you, is expectation that your earnings will be significantly more in future years versus the current year.

Not sure if any of these tips are right for you, be sure to consult a financial professional.