So here we are. 2020 is behind us, a definitely forgettable year for most. 2021 has arrived and most people are in post holiday exhaustion and getting into their work life routine again. The coronavirus pandemic threw everyone for a loop in 2020. And as the new year winds up, its time to reflect, reset and prepare for 2021.
It may be especially important for families to assess their financial health for the new year. The coronavirus pandemic had a major impact. Studies show that 42% of households said incomes are still below pre-pandemic levels. This has meant that many have stepped back from financial goals. More than 60% of Canadians are likely to say they fell fall short of their 2020 financial goals.
The new year provides a perfect opportunity for us as humans to take a sort of a psychological pause for a moment and say, ‘Okay, let’s exhale, pause, and look at where we started this year, where we ended this year, and how we got there in the meantime.
Taking stock of 2020
The first thing we recommend people do is gather all financial statements to review how they did in 2020. If they had a savings or spending target, did they reach it? If not, what happened?
Look for things that are sort of atypical. That includes big spikes in spending during certain months, or a shift in your budget due to the pandemic. If you see something out of place, formulate a plan for this year.
Take some time to check in with your savings accounts as well, such as your emergency savings fund and retirement accounts. If they aren’t where you’d like them to be because of the pandemic, a solution should be in your 2021 plan.
Other things to check? Estate planning, such as powers of attorney or making a will. Insurance is also on the list. Studies again say that in 2020, 46% of people with home insurance and 36% with car policies have not checked their coverage. Of those who didn’t review policies, half of homeowners and one-third of car owners should have because of a life adjustment or change that could’ve either saved them money or meant they needed more coverage.
People should also review any subscription services they’ve paid for this year and see what they could cut to save money. We also suggest looking at 2020 year-end points balances on credit cards and using them for important purchases or other expenses.
Preparing for 2021
Once you’ve reviewed 2020, it’s time to make a financial plan for 2021.
First, make sure you have a solid cash flow document that accurately reflects what you expect in terms of income and expenses and lines up with your long-term goals.
If 2020 was a difficult year, and especially if you had to dip into emergency savings, the goal of 2021 may be to rebuild. If that’s the case, don’t feel bad for having to spend down savings.
No one anticipated this pandemic, but those that successfully made it through the pandemic from a financial perspective often had that emergency fund in place for something exactly like this. So that’s actually great news.
If you need to boost savings again, find ways to make it easier on yourself, such as setting up an automatic transfer in when you receive your pay, or using an app that squirrels away funds on a daily or weekly bases.
Focus on one goal and just make that happen. Some may want to change the total amount in an emergency fund. While financial planning 101 typically suggests three to six months of living expenses, after this year people may want to strive for nine months or more, especially given the lesson the affects of the pandemic have thought us.
Seek professional help if you need it, especially with estate planning such as writing a will and establishing a trust. In addition, make sure you have a financial power of attorney and a healthcare power of attorney, especially important amid a health crisis.
2020 was a tough year
To be sure, millions of Canadians have been negatively impacted by the coronavirus pandemic, and the future is still uncertain. Further stimulus hangs in the balance, and many will see a gap in unemployment benefits at the end of the year.
Financial planners stress that people should still check in with their finances and not be discouraged if the year threw them off.
This was a difficult year on so many fronts. Don’t be upset, put off, or down because of it. It happens. We need to take whatever goals and best laid plans we had in place and take stock. Build a new baseline for 2021.
Having your finances in order is a work in progress and getting back to your plan is part of the process. Northern River Financial can assist you. We need to set realistic goals and try to find tips, tricks, tools, mechanisms things that can help you achieve those goals. Resetting and moving forward with a new, and revised, plan is a clear direction for Keeping Life Current.