Ready for a mid-year financial review? Look for these dangers
The middle of the year is often a good time to review your financial outlook and your behaviors.
This is especially true at this time as the economy shifts from pandemic lockdowns to a more normal business environment. Change is underway, involving new fiscal wrinkles, the expiration of federal support programs and changing budget pressures.
Here are some important recent financial trends and developments to consider.
Watch for updates on the Child Tax Credit
If you’re one of the 36 million families that may be eligible for child tax credits, look for a letter from the Internal Revenue Service on how the program has changed. New features, for 2021 only, include an expanded credit amount and monthly advance payments that begin in July.
The letters are addressed to families who may be eligible based on the information they provided on their 2019 or 2020 federal income tax returns or who have signed up for a stimulus payment. Most recipients won’t have to do anything.
Half of the credits will be paid this year, in advance. The remainder will need to be claimed on 2021 tax returns. Eligible families will begin receiving advance payments, either by direct deposit or check, starting in July and into the remaining five months of 2021.
The American Rescue Plan has increased the maximum tax credit for 2021 to $ 3,600 per eligible child under six and to $ 3,000 for those aged 6 to 17. (Previously, the credit was worth up to $ 2,000 per child and 17-year-olds were excluded.) advanced payments that begins in July will be up to $ 300 per month for each eligible child under six and up to $ 250 per month for children between the ages of six and 17.
The maximum amount is available for people with incomes equal to or less than $ 75,000 (singles), $ 112,500 (heads of household) or $ 150,000 (married couples applying jointly).
Beware of sticker shock
It has become an expensive year to buy a car or a truck. Inventories of vehicles have plummeted, in part due to supply chain issues that have slowed down auto manufacturing plants. The result is a market in which sellers have less incentive to negotiate.
“The rule of thumb that no one pays the ‘sticker price’ for a new car has fallen apart as dealers stick to the Manufacturer’s Suggested Retail Price (MSRP),” said Jack Gillis, executive director of the Consumer Federation of America, in a Dealerships even ask for higher sticker prices for some popular vehicles in short supply, he added.
His main suggestion to consumers is to wait, if possible, for price pressures to ease, perhaps later in the year. Other tips include avoiding fancy upgrades and skipping extras like floor mats, luggage racks, and fabric treatments that can often be purchased later for less.
Gillis also recommends researching loans ahead of time and refusing extended warranties or service contracts that might not be needed and often are not worth the cost.
Review online shopping habits
Online shopping has become more prevalent than ever, in part thanks to store closures imposed by the COVID-19 outbreak and transportation difficulties for some. Despite the many benefits of buying with a computer or cell phone, now may be the time to rethink your spending habits.
About two in five Americans say online shopping has made it more difficult to stay on a budget, and more than half said they have increased their spending since the start of the pandemic, according to a survey for the American Institute of CPA.
Among the advice offered by the accounting group, consumers should try to avoid the tendency to shop out of boredom, and they should be wary of impulse purchases. Instead, follow a “cool down” period by placing selections in an online shopping cart for perhaps a day before completing a transaction, the group suggests.
While you’re at it, regularly change passwords online and consider deleting merchant accounts that you no longer use. Account hacks and retail security breaches remain dangers if criminals can gain access to your personal information.
Prepare for a cut in bill payment
Most consumers have stayed away from serious financial problems in recent times, thanks to stimulus payments, loan forgiveness programs and other relief. But many of these measures have expired or will be in the coming months.
Improved federal unemployment benefits end in September (and have already ended in about half of all states), as do forbearance programs on student loans and mortgages, said Kate Bulger of Money. International Management. Moratoriums on evictions expire at the end of July, after being extended for a further month, but about one in five tenants are late in paying rent, she added.
During this time, many people continued to borrow using credit cards and other means. The typical stressed-out consumer served by Money Management International, a nonprofit financial advisory and education group, is now about $ 7,000 more in debt than before the outbreak of the pandemic. “The payment shock is coming,” Bulger said in a recent webinar.
If you are facing financial stress, it is essential to recognize that government support programs are ending and to seek help when needed. Michael Sullivan, financial consultant at Take Charge America, a nonprofit credit counseling and debt management agency in Phoenix, suggests putting your bills first if you can’t pay it all at once. He suggests paying the rent or the mortgage first, then using the extra cash to pay the bills for auto loans, utilities, insurance premiums and, finally, credit cards.
Consider shopping for a new bank
Breaking with a bank is not easy to do. Chances are, you’ve set up bill payment options with your current institution or have paychecks, Social Security benefits, or other income deposited automatically. Maybe you also have a mortgage, credit card, car, or other loan with the business. All of this may take a while to change, but it’s always wise to look for better deals every now and then in terms of interest rates, yields, and fees.
Between 2011 and 2020, consumers paid $ 345.1 billion in bank charges while collecting $ 231 billion in interest, according to a EnlargeSilver study. That’s an average fee of $ 53.79 per account last year, compared to just $ 44.48 in interest income.
Fees, interest rates, and returns are generally competitive, but sometimes better deals present themselves. For example, Ally Bank announced on June 2 that it was removing all overdraft fees, without any restrictions. Others could follow suit.
“Over 80% of overdraft fees are paid by consumers living paycheck to paycheck or with consistently low balances,” Ally CEO Jeffrey Brown said in a statement. These fees disproportionately hit African American and Latino customers.
While you’re at it, you might want to compare other financial services like home and auto insurance. Also, check to see if you are insured enough to repair or rebuild a house, should the need arise, given the rise in the prices of lumber and other materials in recent times.
Reach Wiles at [email protected].