The pandemic nightmare isn’t over quite yet, but with vaccines now rolling out, the end seems to be in sight. We have someone in charge now who has made a big dent into a return to normalcy. While it’s not time to be lax about public health measures (i.e. social distancing, washing your hands, and mask wearing), it is a good time to start thinking ahead to your financial future and make a money plan.
Yes, I said it. Finances, money, moolah, dough. You have to start making a plan as to exactly how you are going to recover from what has been “Paradise Lost” as someone might say. Who would have ever thought that just eating out at a Mickey D’s would have been remembered as such a special thing?
Making a Money Plan
If there has been even one thing that I know to be true in life (and I hope I know more than just one), it is that in order to achieve something meaningful, it is important to make a good plan for it! I have to thank someone I worked for decades ago for teaching me about making good plans and showing me how they apply to money and finances. His name was Harry M. and if he’s still around today, “Thank You, Harry!”
Harry is also the guy who taught me about proposing the “A” or “B” presentation whenever you want to convince someone that you have a great idea. The game is simple. Whenever you want to get your idea approved by the decision maker, just present two great ideas that you love and they will choose between them, thus the “A” or “B” choices. As long as you like both plans, you win at this game.
Harry was a pretty smart guy, wasn’t he? But that aside, on to our subject for today…
1. Review where you are right now in your current finances
For almost everyone, the pandemic affected your finances in some negative way. That happened primarily due to a lost job or income, perhaps being cut back from full-time to part-time hours, but in any case, less money was coming in every week.
In addition, you and your family may also have adopted some costly new habits like new streaming services or online shopping or even just wasting more money than ever on things like takeout/delivery!
Today is the day to take a good hard look at how your financial situation has changed over the past year.
Consider how you are spending more and how your income has changed at that same time. Look at your savings balances in both your savings and retirement accounts. The important part now is to make your new money plan and use all of this information to rework your budget as needed. When you are in a chaotic period, making good money decisions is very hard to do. Now that you can see light at the end of this tunnel, you can make much better decisions.
2. Make your plan and strategy to consolidate your current debts (and refinance your mortgage)
There has never been a better time to consolidate your debt.
If you are a homeowner with a mortgage, this is even more true and it seems like they are practically giving money to people when it comes to refinancing. I did it and am saving thousands of dollars over the remaining life of my mortgage and you should be looking at that opportunity right now too as rates literally are at record-low levels at about 2% in many instances. You can even look to shorten your mortgage term and try to be mortgage free before you retire! Oh if I had just listened to myself, I would be mortgage free now.
Thanks to rising property values, you may be eligible to refinance for more than your current mortgage balance and use the extra cash to pay off high-interest credit cards or loans. This is a great way to reduce the interest on longer term debt, but not so much on debt you’d pay off in a shorter term. But even if you don’t need to consolidate debt, refinancing your mortgage could result in significant savings and you need to consider it now.
There are also other ways to lower your debt and they include personal loans to pay off high-interest debts or transferring your outstanding credit card balances to a new credit card with a super low- or no-interest introductory rate (for 12, 15 or 18 months).
3. Rebuild your emergency funds
The pandemic has been really difficult for those with no emergency savings. The majority of Americans were not prepared to go months on end without an income.
We knew the lack of emergency funds was a big risk, but no one could foresee such a prolonged period of crisis where a lack of these funds would drive even middle-class citizens into food lines and food pantries daily.
Make building or rebuilding your emergency funds a priority as the pandemic winds down. If your budget barely covers basic expenses, look for other sources of money that could be used for savings, such as your stimulus money or any tax refunds or credits.
4. Make a brand new post-pandemic money plan
You have probably been noticing that gasoline prices have been rising, Most consumer good prices have remained relatively steady, but they are moving up in 2021.
However inflation isn’t the only factor affecting your family’s budget. Even something like a remote work arrangement will come to an end for many and that will send you back to the office requiring you to find afterschool care for children if you have them at the house.
There are many line items that will increase when normalcy resumes even if you didn’t have to spend your money on them in 2020. So now is the time to look hard and make your new plan.
Consider what your expenses will be in the months to come and weigh that against your current income. If you think you’ll have a shortfall, don’t wait to make changes. Start adjusting your spending now to ensure you can more easily transition to your expected post-pandemic lifestyle.
5. Consider whether to convert your retirement funds to Roth
If you have money in a traditional 401(k) or IRA, converting as much as possible to Roth accounts could be a smart move. By moving money to a Roth account, money can grow tax-free and be withdrawn tax-free in retirement. Cash left in a traditional account will be taxable in retirement.
Are there any downsides? Yes. The downside to a conversion is that regular income taxes must be paid on the converted amount. However, since you’re going to have to pay taxes on the money at some point anyway, the good news is that taxes are currently the lowest they’ve been decades because of the tax cuts enacted by the Tax Cuts and Jobs Act of 2017 (which will expire in 2025) and some high earners may see their tax rates increase before then if speculation that a new tax increase on them is on the horizon. Another reason it may be good timing is if your income was lower than usual.
6. Look at your investments
Find the right financial advisor that fits your needs. Fiduciary financial advisors are in your area. Each advisor is legally bound to act in your best interests. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started reviewing with them now to rebalance your portfolio.
To establish a more realistic sense of normalcy, rebalance your portfolio to ensure it has the proper mix of stocks, bonds, and other securities based on your particular goals.
This is also a good time to review how you reacted to last year’s market. If you have low risk tolerance, work with a financial professional to ensure your portfolio reflects your current comfort level when it comes to market volatility. Volatility is to be very much expected as investors get back into the market.
7. Invest in yourself – do you need re-training?
If you have been out of the job market for even a year, you may need to be re-trained. If you are going back to work after years of being out and now it’s a necessity to find a job, you will most definitely need training of some sort. Look at what is required and find the sources that can help. Enhance your résumé by showing that you are up to date in skills you need to get a leg up on other candidates.
8. Review your life insurance and estate plan
The COVID-19 pandemic has claimed nearly 575,000 U.S. lives so far, and the sad reality is that many people have unexpectedly lost loved ones. If you find yourself in this situation, you may need to update your life insurance and estate plan including your will and beneficiaries as well as your bank accounts and retirement funds. As they say in the scouts, “Be prepared”.
It may be easy to put on your happy face and resume life as it was, if that is going to happen as we all hope it does shortly. But the truth is that no one knows exactly when the pandemic will end or what life will look like after it. But it isn’t too early to start looking forward to that day and preparing your money plan now for whatever comes next.
Do you have a current money plan that has been shot to pieces because of COVID-19? Will you be able to make adjustments to get your checklist in order and resume normal finances? What else should be on your checklist now to prepare for life after a pandemic?