Whenever we come to the end of the year, I always recommend looking back at your finances to see what areas are in good shape, where you may have come up short, and what you want to do differently next year.
This review is especially important for your 2020 finances.
If you still have them, look back at the financial goals you set for yourself back in January. What were you hoping to achieve? Where did you want to be at year’s end?
Of course, we know now that this was not an ordinary year. There were probably several hurdles in the way of you achieving your original goals.
As you look back on the year, here are a few areas to focus on:
2020 Finances: Check in with your Portfolio
This year we had both a pandemic and a presidential election, so it’s likely that some of your allocations could have shifted.
You want to look at the mix of stocks and bonds to make sure you have the right amount of risk and security for your age, life stage and risk tolerance.
The key here is to rebalance, not completely redo. Move investments where you need to to get back on track, but avoid trying to time the market if you’re taking a long-term, passive investing approach.
Assess your Emergency Savings
Many people were caught off guard when workplaces shut down in March to contain the spread of the coronavirus. They found themselves with too little savings to account for the sudden loss of income.
This is why an emergency fund is so important. If this year taught us anything, it’s that you have no idea what could happen tomorrow. So if you found that your emergency fund wasn’t sufficient for all the upheaval that 2020 brought, make a plan to allocate more money to emergency savings in 2021.
(You typically want to save for 3-6 months’ expenses, or a little more if you own your own business.)
Set New Goals to Get Back on Track
Don’t be too hard on yourself if you made little progress on your goals for the year. This was an extraordinary year, and it threw nearly everyone for a loop.
Even if you struggled this year or are still struggling, you can still make a plan to move the needle toward your big goals.
Prioritize your needs and pick up where you left off with your goals this year. If you lost some income this year, can you move money to a Roth to take advantage of tax benefits? If you had to hold off on paying down debt or adding money to your child’s education fund, can you pick that back up again? Focus on a few small, manageable goals if you’re feeling overwhelmed.
2020 was a prime example of why we plan, prepare for emergencies, and focus on long-term goals. There will be other turbulent times in the future, and that’s exactly why we build that awareness into our portfolios and financial plans.
Checking Your List
As you’re going through your year-end tasks and reviewing your 2020 finances, here are some guides to help you stay on track and set yourself up for a better 2021:
Do you need help getting your finances in order? Contact me today to set up a meeting to talk about your goals. You can also download my free ebook for physicians for tips and information about getting your finances on track.