Resolutions to Carry You Forward
As 2020 comes to a close (finally), we'd like to share some thoughts on how we can rebound from this year and make 2021 the best year yet.
- Reflect on how this year has affected your finances. For most families, it's a mixed bag. You may have saved money on childcare but taken on debt to make up for lost income. Your vacation budget may have gone towards home renovations you've put off for a long time. Perhaps you moved investments into or out of the stock market. Whatever the case was, consider what you would have done differently or how you would have prepared differently if given the chance.
- Create two household budgets. This is especially important if budget is a 4 letter word in your household! Consider this a snapshot of your current spending. A good budget is one that is realistic and includes saving for the future as well as some spending money for now. Budget #1 should be your "normal times" budget - the way you're spending today, put on paper. Budget #2 is an "emergency budget" - if something comes up where you need to drastically change your spending, what will you do? Can you downgrade your cell phone plan? Stop paying extra to your mortgage? Narrow it down to one streaming service? Making these decisions during moments of calm and clarity will mean that when there is a real emergency, you have one less decision to make and you're not letting your panicked brain call the shots.
- Re-examine your monthly expenses. While you have that budget out, look for opportunities to trim it down without sacrificing your quality of life. When is the last time you shopped for home and auto insurance? Are you paying interest every month on a credit card while you have savings in the bank? Are there subscription services you were once excited about that have lost their luster? Trim up that budget where you can.
- Plan for an emergency. Having an emergency fund is an indispensable financial tool that can make the difference between a rainy day and a monsoon. Start contributing any amount that you can to a dedicated emergency fund. The fund is "full" when it could fund your household expenses for 3-6 months. The nature of an emergency is that it will come without warning - this fund should be liquid and relatively easy to access. When an emergency arrives, make sure you actually use this fund instead of pulling out your credit card or adding some other liability to your life. Then just keep refilling on a regular basis until it's full again.
- Check your risk tolerance. 2020 was a gut check in so many ways. How did you feel about your investments in March and April? Did you take any action or ride it out? Speak with us (or your financial professional) about how your investments are positioned and what you will do the next time that things get scary. Make sure that you understand how your investments fit into the plans that you have for the rest of your life.
- Take out the friction. A good financial plan is one that's easy to follow. You don't get an award for jumping through extra hoops or breaking a sweat! Leverage the people and technology around you so that following your financial plan is the easy and natural thing to do. This could mean setting up regular meetings with us (or your own advisor if it's not us) to go through any mail you get that relates to your finances, utilizing an automatic rebalancing function in your accounts, turning on the automatic escalation feature of your retirement account, or using your bank's bill pay service.
From our families to yours, Happy New Year. We're feeling optimistic about 2021 and hope that you are too.
Hannah & Andy