Last year was a year of turmoil for most of us. The pandemic and the election were just a few of the events that impacted our nation in 2020. Fortunately, 2021 has started on a brighter note, with the arrival of vaccines that promise to bring life closer to normal. If you are looking for a fresh start this year, your personal finances are a great place to begin.
Examine Your Budget
The first step in refreshing your finances is to examine how much you spend, and how much you save. Identify your income and expenses, and then compare them to make sure you are spending less than you earn. Hopefully, you were able to stay the course during the pandemic. If not, you may need to cut back on some spending, or look for way to lower your monthly bills.
Once you have a workable budget in place, it’s important to stick with it. The temptation to stray from a budget is natural. Here are a few tips to make sticking with your budget easier:
- Make budgeting a part of your daily routine
- Build occasional rewards into your budget
- Evaluate your budget on a regular basis and make changes if needed
- Use budgeting software or an app to help keep track of your finances
Pay Down Your Debt
Reducing debt is part of any healthy financial plan. Paying down “unproductive debt” as quickly as possible is usually a good idea. Student loan debt, high-interest-rate auto loans, and credit card balances are all examples of “unproductive debt”. Start by tracking all of your balances and being mindful of interest rates and hidden fees. Next, optimize your repayments by paying off any high-interest debt first and/or taking advantage of debt consolidation/refinancing programs.
If the financial impact of the pandemic has made it difficult for you to pay down your debt, you may want to contact your lenders to see if they offer financial assistance. Many lenders may be willing to work with you by waiving interest and certain fees or allowing you to delay, adjust, or even skip some payments.
Think About Your Financial Goals
While the pandemic may have sidelined or stalled some of your financial goals, now is a good time to regain your focus. Take a look at the financial goals you set for yourself last year. Perhaps you wanted to increase your emergency fund or save money for a down payment on a home. Maybe you wanted to invest more money towards your retirement. Were you able to accomplish your goals despite any setbacks brought about by the pandemic? Do you have any new goals you would like to achieve in 2021? Finally, if your personal or financial circumstances changed, will you need to reprioritize your goals?
Make Sure Your Investment Portfolio is Still on Track
Despite the pandemic, the U.S. stock market ended 2020 at an all-time high. But that doesn’t necessarily mean your investment portfolio is still targeting your financial goals. When evaluating your investment portfolio, you’ll want to ask yourself the following questions:
- Do I still have the same time horizon for investing as I did last year or prior to the pandemic?
- Has my tolerance for risk changed?
- Do I currently have an increased need for liquidity?
- Does any investment now represent too large (or too small) a part of my portfolio?
Market volatility and current events aren’t usually a good reason to change your long term investment strategy. If your goals have changed, or your finances have changed, a portfolio review can help you keep your investments aligned with your financial plan.
Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer