By Jane Young, CFP, EA
Everyone’s life has been disrupted by the pandemic over the last year. According to a study by Fidelity Investments, nearly 2/3rds of all Americans experienced a major life event such as a loss of a loved one or a job loss. During this time very few people were thinking about long term goals and financial planning. Thankfully, we can see a light at the end of the tunnel as social distancing restrictions are eased and things start getting back to normal.
Although it has been a difficult and sad year we should come out of the crisis with greater financial wisdom and insight. Nothing influences us to prepare for emergencies and manage our finances better than a crisis.
The pandemic has forced us to reflect on our values and our priorities. With this new perspective now is an ideal time to set new life and financial goals. Review your current situation and think about your financial vision for the future. The pandemic may have increased your desire to spend more time with family, make some career changes, expedite retirement, take a major vacation, move to a home with more open space or take less risk with your investments. Adjust your long-term goals to reflect your wiser more insightful post COVID perspective.
Everyone experienced a dramatic change in their spending habits due to the COVID restrictions. As restaurants, businesses and entertainment venues return to normal we need to be mindful about over-spending. Develop a budget to help manage your spending as the economy gets back to normal.
Many people used or depleted their emergency funds during the pandemic. Replenishing your emergency fund should be a high priority. If you stopped contributing to your retirement plan you should also resume saving for retirement once your income is stable.
If your income was not impacted by COVID you may be able to supplement your emergency fund, contribute more to retirement accounts or pay down high interest debt with your stimulus payments. You also may be able to contribute more to 529 college funds for your children if you are receiving a higher child tax credit.
The terrible losses experienced with the pandemic are a reminder to keep our estate plans current. Take some time to update your will, powers of attorney and your beneficiary designations. You may also need to review the need for term life insurance if you have loved ones dependent on your income.
A key to effectively managing your finances is maintaining a diversified portfolio. Despite the negative impact of the virus on some sectors of the economy, the stock market is currently up 25% over the pre-pandemic highs. You may need to rebalance your portfolio to bring it back to your target allocation. Adjustments also may be needed to reflect any changes to your post-COVID financial goals.Additionally, over the last year home values have significantly increased so you may need to increase your insurance coverage.