The pandemic has hit Uncle Sam’s budget hard. This June, the federal gov’s deficit (aka the difference between what it spends vs. brings in) hit a monthly record. That’s driven, in large part, by COVID-19 relief efforts – think: stimulus checks, small biz loans, and extra unemployment payments – and lower tax revenue. You can thank a later-than-usual Tax Day and fewer workers giving the gov a cut of their paychecks for that last part.
Here’s what the growing deficit could mean for your wallet.
Lending the gov money could pay off. Treasuries are usually considered one of the safest investments. That’s because you’re counting on the federal gov to pay you back later in exchange for a loan today. Reminder, low risk usually = low reward. When the federal deficit is high, there’s a theory that investors will get trust issues and sell. That could drive yields (aka what you earn from a bond) up. But right now, an extra shaky economy has a lot of people looking for guaranteed returns, which has kept yields (mostly) in check.
Your retirement benefits could be at risk. If this sounds like a familiar threat, that’s because it is. Last year, experts projected that the Social Security reserve fund would officially be out of cash by 2035. New research shows that the pandemic could speed things up. If the gov can’t afford to keep this program going, it’ll be even more important to make sure you’re looking out for Retired You. Psst...this can help.
Your tax bill might get scarier. One way Congress could balance its budget is by increasing taxes (yay). The outcome of the 2020 election could give you a better idea of when (or if) that will happen.
The next stimulus package may not be as sweet as the last one. There’s nothing like a reminder of how much money you don’t have to put the brakes on future spending. While more relief is still on the table, lawmakers may be less generous this time around.
theSkimm: You might not be able to control what Uncle Sam does with his money. But you can be smarter about yours. That could mean giving your savings some love, adding to your retirement account or just staying on top of news that can affect your financial future.