We are now in the second year of the coronavirus pandemic and if there’s something we’ve learned so far, it’s that even the most well-thought-out plans may still go wrong. Just think of all the plans you’ve made for 2020 and all the economic and personal shocks most of us got in return.
Thousands of people lost their jobs, hundreds of businesses closed down and others in steep decline, thousands of people ended up in hospital, death rates reached unprecedented numbers due to COVID-19. The economy took a hard hit and reacted to the pandemic by slowing down and slipping into a much-feared recession.
Don’t neglect your finances
The economy seems to show signs of rebound. Despite the dramatic unemployment rates, the markets have managed to make a comeback and some jobs have bounced back in certain sectors of the economy. Although the presidential elections have affected the process, some sort of economic assistance was still provided via the CARES Act. The COVID-19 vaccine rollout is in full swing, but we still have months to wait until it is widely distributed.
The coronavirus and the consequent health and economic crisis took us all by surprise in 2020 but after a full year of ups and downs, we should be more financially and mentally prepared in 2021, shouldn’t we?
If you still have some things to fine-tune, here are some recommendations as to what to focus on in terms of your finances and financial stability in 2021.
Make sure you also take a look at these 13 Important Things That Will Become More Expensive in 2021.
Plan, plan, plan
Planning to get through yet another rough year of economic uncertainty and COVID-19 strains is paramount for financial stability. The first thing you need to do is make sure you have some money set aside for emergencies, whatever the type. Financial experts recommend setting aside a year’s worth of expenses in cash or highly liquid investments.
To be able to real save this money, especially when you have a fluctuating income, try thinking in percentages instead of figures. Put aside a certain percentage of your monthly income rather than a certain figure. To make sure you succeed, you need to set a reasonable percentage and stick to it no matter what.
It would also be helpful if you could avoid making new significant debts in 2021 and focus on reducing your existing debt. Your financial plan should be evaluated and updated constantly to be in line with the situation in 2021. But what exactly should you start with? Read on to find out.
First, examine your budget carefully
To make the most of your financial plan, re-evaluate regular expenses and eliminate the unnecessary ones as often as possible. You might have automatic payments for services you no longer use, streaming channels you no longer watch or subscriptions to the gym you no longer go to. These can all add up and bleed you dry.
It’s essential to check your expenses and cut the redundant ones. Your baseline budget should consist on essential things that you need to spend on until better days come. To get a general idea of what you should reevaluate in terms of costs, check out these These 11 Unnecessary Expenses and How to Save Money During the Coronavirus Crisis.
Secondly, review your portfolio
The past year has been particularly hard on certain stocks, while others, like health care and medical stocks, managed to come out fairly unscathed. Therefore, it would be smart to review and optimize your financial portfolios while there’s still room to do so in 2021.
Take into account other portfolio income, for instance, publicly traded real estate companies which can bring attractive profit. Just as important these days is to avoid acting on fear and panic whenever there’s a market change. When something like this happens, consult a financial adviser to help you take the right decision, a decision you will not end up regretting later on.
Thirdly, maximize your retirement savings
Many Americans found themselves retired earlier than planned in 2020, as a consequence of the economic recession and disappearance of jobs and employers. This risk is still threatening hundreds of other Americans in 2021, but instead of seeing it as a bad thing, you can make the most of your early retirement.
First things, first: you need to prepare yourself for the eventuality of an early retirement. Save as much as possible by the time you retire, especially when you no longer know when that is. Individuals who have already retired and are turning 71 in 2021 should also take into account the required minimum deductions they must withdraw from their account every year. If they are not taken in time, they can be crippling to someone’s finances.
Review your tax situation
To make sure April doesn’t come with any unpleasant surprises, try to think ahead, anticipate and address the now. As reported by the IRS, unemployment compensation is treated just like any other income, therefore subject to federal taxes; this includes the extra $600 received every month from the federal government.
Therefore, it might be a smart move to make an anticipatory payment to reduce the amount you’ll have to pay in April. You should also review your liquidated investments and their potential effect on your tax situation.
In terms of refunds, if you want to get one, it would be a good idea to file as soon as possible and have those funds in your pocket for savings or investments. If you’re short of ideas, check out these 8 Smart Ideas on How to Make the Most of Your Tax Refund.
Review your insurance plans
In unpredictable times, it’s paramount to have the right insurance coverage that meets your needs but also your budget. Life insurance is one such example. In families with minor children, in case one or both parents no longer have any income, life insurance is especially important and may require updating.
Make sure you also review your health insurance so as to avoid potential calamitous expenses caused by the pandemic.
If the situation allows it, update your homeowners and flood insurances to make sure you are protected against disasters that may take place independently of the COVID-19 pandemic.
Saying that 2020 was full of surprised would be an understatement. A once careless and relaxed world was suddenly caught up in panic. Economies dropped like flies in a matter of days, unemployment reached record high rates and businesses went bankrupt faster than ever.
But as 2020 became 2021 and COVID-19 doesn’t seem to disappear anytime soon, we have to make use of past events and experiences and come up with a solid plan for whatever this year might bring. Having a financial plan, putting money aside for “rainy days” and reevaluating our budget and financial situation can help you survive another year of uncertainty and pandemic.