If we could look in a crystal ball, we would have a clear picture of how we should financially prepare for 2021. We can only guess what lies ahead for us next year basing on our experiences this year. 2020 has been tough on many- business closings, lay-offs, disruptions to learning, health and social concerns, and financial stress.
If the recession extends into the New Year longer than we would like, our optimism may stifle. Many people have changed their habits during COVID-19. Adapting to the new normal is critical to staying healthy. It will also assist you to be financially prepared for anything. Here are a few ways you can prepare for the upcoming year:
Save as much as possible in case of a future lay-off or closing at your employer. Your emergency fund should cover a minimum of three to six month’s expenses. While you can take a distribution up to $100,000 from your retirement savings this year through The CARES Act without paying the 10% early distribution fine, liquidating your shares may result in taxation, a loss of valuation, and having less money during retirement.
If you are still working, consider increasing your retirement savings contributions. That way, if you do lose your job or are laid-off, you have at least made some contributions that will help boost your retirement savings. Meet with your financial professional and review your portfolio’s diversification. Diversification can help avoid severe losses when containing assets from various market segments and insurance products such as annuities.
Often people find themselves running out of money before their next paycheck arrives. If this sounds like you, take time to assess your overall monthly spending to find gaps that are eating up your monthly income. Determine what you can eliminate to ensure you are not financially stressed each month. Remember that setting aside part of your income for retirement and future needs is as important as your needs and wants. Some budgeting methods include the 50/20/30 budget or the envelope method. Investigate other ways that may help keep you on track each month.
If you are carrying credit card balances forward each month, paying your debt off will increase your ability to save. Instead of paying interest and monthly credit card payments, use the additional money to increase your savings. According to a September 2020 study by WalletHub:
“Americans began 2020 owing more than $1 trillion in credit card debt after a $76.7 billion net increase during 2019. Consumers quickly changed course, however, posting the biggest first-quarter credit card paydown ever, at $60 billion. This was followed by another record in Q2 when consumers payed down $58 billion more in credit card debt. Although first-quarter paydowns are normal, Q2 2020 marks the first time in more than 30 years that credit card debt has dropped from April through June.”
WalletHub projects that U.S. consumers will end 2020 with a reduction in credit card debt for the first time since the end of the Great Recession in 2009.
As 2020 ends and 2021 begins, preparing for the unknown lies ahead in your best interest. If you have any questions about how to financially prepare, saving, or protecting your future, reach out to me anytime.
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In conclusion, at Senior Tax Advisory Group, each one of our professionals is a vital part of your financial team. In addition, our team has experience in all aspects of financial planning. We have what it takes to provide you with a comprehensive retirement plan. Contact us today to schedule an introductory meeting!