When you look back on 2020and the pandemic, what would you like to reset?
Perhaps it’s more time with your loved ones, better work-life balance, adopting healthier eating habits, getting more sleep, or using your money wisely. There are likely many areas of your life that you want to revamp. The whirlwind of 2020 taught us many lessons – how to work, maintain relationships, and experience personal growth during a pandemic.
The coronavirus pandemic forced everyone to change their behaviors, especially with money. Make 2021 the year you take intentional steps to improving your life and your finances. How can you accomplish that goal? Here are 5 ways you can reset your finances in a pandemic.
1. Set New Goals that Reflect Your Values.
When you survive something difficult your outlook on life – especially goals and priorities – tends to shift. While your top priority before the pandemic might have been getting a promotion, maybe you’ve realized your job isn’t fulfilling so much as it puts food on the table.
This year, maybe change your goal to search for a career you’re passionate about – one with visible impact that offers the joy and balance you need. Take the time to reevaluate your goals. There are some you might not have been able to reach last year and others you want to makeover. Ask yourself:
- How have my priorities shifted during the pandemic? In what ways should my goals reflect that change?
- What progress have I made on my current long-term goals like retirement?
- Were there any goals I put on the backburner? Can I give them a new life in 2021?
One way to give your goals a fresh purpose is to make them SMART. Smart goals clarify the goal-setting process because they ask you to think more critically and thoughtfully about each goal you bring to the table.
Let’s break down this acronym using the example of finding a more meaningful job:
- Find a job where you can make an impact.
- Engage in a meaningful job search (a.k.a no rapid applying). Thoughtfully research companies and only apply to positions aligned with your definition of impact and fulfillment.
- Ensure you have the proper education and experience. Should one area fall short, see how you can fill the gap (i.e courses, networking, etc).
- Make sure each position you apply for is aligned with your goals and values.
- Set a time frame for finding your new job (such as an ideal 6-month job hunt).
Now is the time to reassess what’s most important to you and to organize your life around those elements. Taking a meaningful approach to your goals will help you achieve them.
The pandemic may have altered your priorities and that’s okay. Take the time to clearly articulate those priorities and how your financial resources can support them in the coming year.
2. Adjust Your Finances for Life Changes.
If there’s anything the 2020 pandemic taught us, it’s that things change. You may have had a 5-year financial plan, but as the saying goes, “Life likes to get in the way.” The pandemic may have moved you into a bigger house or maybe you even started (or added to) your family.
Every new adventure brings different financial needs, so take time to adjust your finances to your real life. This advice pertains to your budget, spending, saving, investing, goal-setting, and more. Make 2021 the year of alignment, where your money is truly representative of your life.
For example, buying a new home sets off a chain reaction of other expenses like automating mortgage payments, saving for property taxes, figuring out utilities, and budgeting for new paint and furniture for the nursery.
The bottom line is your finances will need to adapt to your lifestyle. No matter how well you plan, life will always shift and you’ll need to align your finances with those changes to stay on track.
3. Build Up Your Emergency Fund and Adapt Your Savings Plan.
Did you have to dip into your emergency fund to cover unexpected 2020 expenses? If so, don’t worry, that’s what the fund was there for. Your emergency fund helps safeguard your finances in an unexpected situation like a job loss, hospital needs, necessary travel, etc.
Using emergency money to spot you in a pinch is an essential financial planning tool. When you dip into this fund, it’s important to build the fund back up again. Throughout this year, allocate a portion of your savings to your emergency fund.
While most advice encourages you to save 3 to 6 months of living expenses, you might want to increase that number if you have more debt, a family, inconsistent income, or you just want an extra cushion.
- Was your emergency fund enough to cover your expenses?
- Do you need to save a little extra this year?
- How can you intentionally add to your fund?
It’s also prudent to reevaluate your savings strategy. Given the turbulence of 2020, you might want to save more of your take-home pay. Think about both the short-term and long-term goals you’re working toward.
- What can you do to further those goals?
- Did you add any new goals to the table like saving for a child’s education or planning a well-deserved vacation?
Your goals should be the driving force behind your savings plan. When you look at your goals and savings in tandem, you’ll be better able to build a strategy tailored for you.
4. Take Another Look at Your Cash Flow.
Cash flow is all about balancing money coming in and money going out. In times of stress, your cash flow management might be the first thing to go. When was the last time you checked your expenses? Are you surprised to see you’re subscribed to every new streaming service? Did you ever cancel that meal service you tried for the first-week promo?
The new year is a great time to check your spending habits. Try to do the following:
- Track your spending. Whether it’s an app, excel sheet, or pen and paper. Knowing what goes out and what comes in will help you trim your budget, freeing up more for saving and investing.
- Ditch the negative spending habits. Every one of us has negative spending habits we’d like to kick to the curb – retail therapy, excessive dining-out, liberal use of Amazon Prime, etc. Be honest with yourself about where you fall short and take productive steps to make healthier choices.
- Bring intention to your spending. Spending money well becomes a lot simpler when it’s done with intention. Ask yourself, does your purchase bring you joy? (Note we said joy, not happiness). Is your spending aligned with your goals, values, and priorities? Does your spending lead to lackluster financial results? When you reframe spending in this way, it becomes more natural to infuse spending with your values.
- Prioritize your savings. Part of maximizing cash flow is ensuring you have enough of your income saved and invested. You want to establish a strong emergency fund, contribute to your retirement accounts, save for other goals, and invest in the markets.
Remember, financial planning is an ongoing process. Your spending, saving, and investing will likely fluctuate, which is why your goals and values are essential to guiding the process. When you lean on goals and values, you’ll have a clearer sense of what to do next or at least have the right questions to help you get there.
5. Zero-In on Your Investments.
When you think about a pandemic you probably don’t think about focusing on your investment plan, but that’s exactly what you should do. Many find it difficult to continue investing during tumultuous times, but for most people the best course of action is to stick with your plan.
When you build your investment plan with a trusted advisor, you can be confident your plan takes into account your risk tolerance and capacity, time horizon, and goals. If you’re thinking about adjusting your allocations, ask yourself:
- Has your risk tolerance or capacity changed?
- If so, work with your advisor to change your allocations to better reflect your preferences.
- Are you near a big life transition?
- Perhaps you’re starting a business or just had your first child and you need access to more cash. These life moments might also mean you and your advisor should revisit your allocations to ensure they still align with current and future circumstances.
- Have your long-term goals changed?
- Still hoping to retire by 40? Do you want to open your own business? If your long-term goals haven’t changed, it’s likely best to leave your investments alone. Investing is built for the long-haul. Even though there will be ups and downs along the way, it’s key to remain as calm as possible and take change one thoughtful step at a time.
If you can afford to remain invested, it’s usually best that you do. Your investments set you up for reaching future goals and maximizing the future you.
Take Your Finances to the Next Level
Though many would say 2020 wasn’t the most financially prosperous year, today marks a new year and new opportunities to take control of your financial life. One of the best ways to do that is to work with a financial advisor. Your advisor will be able to help you transform your financial resources to support the things that matter most to you.
Your money has purpose and meaning when you align it with your goals and values. We’d love to help you make those critical connections with your finances this year. Set up a time to talk with us today!