Aimee Picchi, Special to USA TODAY
Published 5:01 a.m. ET June 17, 2020
Where does the U.S. stimulus money come from? Here’s how the Federal Reserve is saving the economy from the COVID-19 crisis.
The millions of Americans who have filed for unemployment since the pandemic walloped the economy in March face an unwelcome surprise next month.
While the CARES Act directed an extra $600 a week in jobless benefits to help out-of-work Americans weather business shutdowns, those additional benefits expire July 31.
Unless Congress steps in to extend the benefits, Americans will see their unemployment checks reduced to their state’s typical payout starting in August, with a national average of about $378 per week. But some laid-off workers may not be aware of the cutoff, with a recent survey from Credit Karma finding almost a quarter of respondents believing there was no expiration date for the extra $600 per week.
In other words, jobless Americans could endure a sudden cut in their income starting in about six weeks. Because it may take longer to find a new job in the current pandemic-stricken economy, unemployed workers should develop a financial plan to help them stay afloat when the additional benefits run out, financial experts say.
Black Wall Street: Trump’s plan for rally in Tulsa calls attention to 1921 race massacre
Looking to buy a car: Hertz is selling thousands of used cars in its fleet in bankruptcy at bargain prices
“A lot of Americans don’t have a strong safety net, and this is helping them make it through the pandemic,” said Ken Lin, CEO of Credit Karma. The end of the extra unemployment benefits may be “a bit of a rude awakening.”
Two-thirds of out-of-work Americans are earning more with the extra pandemic benefits than they did working, according to a University of Chicago study published last month. That’s prompted some critics to argue that the newly generous benefits could provide a disincentive to return to work.
It’s unclear whether help is on the horizon. The $3 trillion HEROES Act, which was passed by the House last month but hasn’t yet faced Senate scrutiny, would extend the $600 weekly jobless benefits. Even so, Republican lawmakers have expressed skepticism about the bill.
In the meantime, unemployed people should plan ahead to avoid a financial shock on July 31, financial expert say.
Self sufficiency Don’t splurge with first unemployment check
Millions of laid-off workers have struggled to file for their benefits due to out-of-date systems and backlogs of claims in many state labor departments. Because unemployment benefits start on the date a worker was furloughed or laid off, a delayed first unemployment check can represent several weeks of benefits.
Resist the urge to splurge when that first big check arrives, says Matt Schulz, chief industry analyst at CompareCards. “Some of it needs to be set aside knowing you’ll have to pay future bills,” he notes. “It’s important that you are thoughtful with it and not see it as an excuse to spend.”
Self sufficiency Budget, budget, budget
Make sure you have a monthly budget, says Chantel Bonneau, wealth management advisor at Northwestern Mutual. The goal is to understand your monthly expenses, and then figure out a plan for how to cope with a loss of $600 a week beginning in August.
“You won’t know how impactful a $600 a week loss is if you aren’t clear on how much of that money you need to lead your life,” Bonneau says.
She recommends categorizing expenses into three categories: Fixed expenses such as your rent or mortgage; discretionary spending such as groceries or clothing purchases; and savings. That will enable you to see which discretionary costs could easily be cut. It could also help you think about how to reduce some fixed expenses, such as getting a roommate to help lower your rent costs.
Self sufficiency Build an emergency fund
Take advantage of the remaining weeks of higher unemployment benefits to sock away money in an emergency fund, financial experts say. It’s clear that many Americans are leaning on their emergency savings to get through the pandemic, with about one in four families having dipped into their savings or emergency funds to cover their living expenses during the crisis, according to Northwestern Mutual’s 2020 Progress and Planning Study.
Consumers may be weighing whether they should save or put the money toward paying down debt. But for Americans without emergency savings, a cash cushion may be more important at the moment than reducing debt, Lin says.
“Cash is king in that scenario,” he adds. “You don’t know what will happen with credit cards, credit limits, personal loans and refinancing, but if you have $1,000 in the bank, that’s more certain and something you can count on.”
Self sufficiency Prepare for taxes
Lastly, don’t forget about the taxman. Almost one in three adults receiving unemployment incorrectly believe the payments are tax free, Credit Karma found.
You can avoid an unwelcome tax bill by asking your state unemployment office to withhold taxes from your check. Alternatively, you can save your estimated taxes and pay the IRS directly, which Lin recommends.
“It only makes sense to withhold if you can’t control yourself” with spending, Lin adds.
The Most Powerful Sale & Affiliate Platform Available!
There's no credit card required! No fees ever.Create Your Free Account Now!
“When you withhold you are giving the government an interest-free loan.”
Read or Share this story: https://www.usatoday.com/story/money/personalfinance/2020/06/17/cares-act-unemployment-what-happens-when-600-weekly-benefits-ends/3194716001/
Find New & Used Cars
Subscribe to the newsletter news
We hate SPAM and promise to keep your email address safe