Before we wish you all a happy New Year, we would like to take a brief moment to reflect on 2020 and give it the send off it deserves. So here it is…
Dear 2020, don’t let the door hit ya’.
With that out of the way, a lot of things did happen in 2020, and some of them likely impacted your financial situation. If 2020 took you by storm, you might have some extra work to do to make sure your financial plan is back on track.
Taking stock of 2020
The pandemic brought with it market volatility the likes of which we hadn’t seen in over a decade. Many responded by cutting back on expenses, including retirement contributions. Others took advantage of CARES Act provisions allowing people to take money from their 401ks without penalty.
Now is a good time to look at where you might have gaps. Did you withdraw from your emergency fund? Did you see a reduction in hours? Are you behind in your retirement account contributions? In order to make a correction, you need to know what to correct.
Making those corrections
More than anything, your investments benefit from time and compounding interest. As you look to 2021, make catching up on your investments a priority. Create a detailed budget and make the necessary cuts to accommodate your game plan. Trust us, they’ll save you a lot of pain later.
If you took money from your emergency fund, consider using the forthcoming COVID stimulus checks to replenish it. If you stopped contributing to your HSA, remember that you can change your contribution any time during the plan year. If 2020 has taught us anything, it is that health emergencies can come when you least expect them.
Gear up for 2021
Make sure you are ready for tax season. If you have last minute decisions to make about end-of-year gifts, don’t wait until New Year’s Eve. The difference between giving now or in 2021 could mean hundreds or thousands of dollars in tax savings.
While the market rebounded from its initial pandemic declines, you may still have seen losses, especially if you were heavily concentrated in the hardest hit industries. If that’s the case, consider selling to offset gains from other investments. While you’re at it, this would be a good time to look at your portfolio and rebalance as necessary.
Then, plan for a fresh start in 2021. Pay yourself first. Aim for 10% of your income to go into savings. If that isn’t feasible at the moment, bump your contributions up by 1%. Pay off any bed debt, especially credit card debt you may have accrued in 2020.
Above all, don’t let a bad year get you off track. Even if you made moves that you now regret, time is on your side, and a sound financial strategy can get you back in line with your financial goals.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Wealth Enhancement Group and LPL Financial do not provide tax advice.
This article was originally published in the Pioneer Press. You may view the article here.