October 2, 2020 – By Sarah Sharkey
It’s safe to say that 2020 has been a wild ride for nearly every American. Not only have we been dealing with a global pandemic, but also unprecedented job losses and wild price swings in financial markets. The economic chaos caused by COVID-19 has upended the financial plans of millions of people throughout the year.
Now’s the time to chart a plan to get back on track. As we barrel toward a fresh start in 2021, there are a few things you can do to help set your finances up for success in the New Year. It can be tempting to put some of these personal finance fixes off until next year. But getting a head start will help you make your financial goals happen next year.
Here are a few personal finance must-dos before year-end to help you finish 2020 financially strong and set yourself up for success in 2021:
1. Budget for Holiday Spending
The holidays can be a major spending trap, says Connor Brown, founder of After School Finance. “One surefire way to derail yourself in the last few months of the year is overspending on the holidays,” Brown says.
But you don’t need to bust your budget with out-of-control spending to enjoy the holiday season. “The best thing you can do to avoid overspending during the holiday season is to make a list of who you need to buy gifts for and what your spending limit is per person,” Brown says. “If you go into the holidays with a game plan, you are much less likely to overspend – a mistake that could lead to a difficult start to the New Year.”
Your wallet and sanity will thank you if you set up a money plan for the extra expenses that are coming. And don’t forget to factor in travel costs to visit family members and food and drink expenses for holiday get-togethers.
2. Review Your Money Goals
As the cooler weather sets in, set aside an afternoon to review your money goals. No matter where you stand in your personal finance journey, moving your finances in the right direction requires setting thoughtful money goals.
Your money goals should help you make financial decisions. As you consider your saving, spending and investing plans, set goals that are specific, measurable, attainable, realistic and timely.
“By setting financial goals that are specific, they will motivate you to balance your spending and savings,” says Katie Ross, education and development manager for American Consumer Credit Counseling.
3. Craft a Savings Plan for 2021
Once you’ve taken some time to set your money goals it’s time to craft a savings plan for 2021. The savings goals that you set should reflect your values and where you are at in life.
If you struggled to meet your savings goals for 2020, then consider setting up an automatic saving plan. Ethan Bloch, CEO of Digit, is a big advocate for automated savings strategies.
“There are great financial tech tools out there to help you make smart financial decisions automatically,” Bloch says.
If you’ve decided that you want to save more money, then an automated deposit into a separate savings account can be the perfect solution. “Without even noticing it, you can build toward financial health while your tools go to work on their own,” Bloch says.
Boosting the amount you save in your 401(k) each paycheck is another automatic-savings strategy that will pay off.
You can put the right systems in place now to start 2021 out on the right foot.
4. Use Up Your Flexible Savings Plan
If you have contributed to a flexible savings plan – otherwise known as a FSA, then now is the time to spend it. The funds in your FSA can be used to cover certain medical and dental expenses for you and your dependents.
Although there are some exceptions, you typically need to use your FSA funds within the year. However, your employer may allow you to use the funds in a grace period of 2.5 months after the end of the plan year. Additionally, your employer may allow you to carry over $500 to use in the next plan year.
If you aren’t sure what rules your employer has in place for your FSA, then take a minute to call your human resources department. They should be able to tell you exactly how much you need to spend by a given date. Don’t let these funds go to waste.
5. Consider Your Healthcare Options
With our health at the focus of this year’s coronavirus chaos, it’s important to review your healthcare insurance options. “If this year has taught us anything, it is that our health is our wealth,” says Noa Hoffman, CFP with Singleton Foundation. “Open enrollment is the time-Sunday, November 1 to Tuesday, December 15, 2020-to review your current health insurance plan and make changes if necessary.”
But cheaper plans aren’t always better, Hoffman warns.
“While it may be tempting to switch to a cheaper plan to cut costs, consider the benefits that add value to your plan such as cost-sharing, preventative care, telemedicine, nurse helplines and care management,” Hoffman says.
Make sure that you’re comfortable with your healthcare coverage in terms of your budget and your coverage as the year comes to a close.
6. Bolster Your Emergency Fund
With a year full of heart-stopping emergencies, such as furloughs and job losses, 2020 has been a reminder of just how critical having an emergency fund is. Most experts recommend keeping at least three to six months of expenses on hand in an accessible account.
If you have an emergency fund, then check to make sure it hasn’t been depleted in the chaos of this year. If you don’t have an emergency fund in place, it’s time to take action.
Wade Schlosser, CEO and founder of Solvable, recommends that you “begin automatically depositing whatever you can afford into that account each month. This might mean taking a look at your income and your expenses and finding ways to cut expenses or increase your income to free up a little bit of cash each month. It will be worth it as you watch your savings add up.”
Once you have a solid emergency fund on hand, you will be able to handle whatever surprises life throws your way without taking on debt.
7. Take a Closer Look at Your Debt
If you have high interest loans on the books, such as credit cards with 17 percent APRs or mortgages with high interest rates, then it might be time to reconsider your repayment strategy.
According to Jim Pendergast, senior vice president of altLINE, “now’s the right time to refinance” your home loan since mortgage rates are near record lows. He also recommends taking advantage of temporary debt relief programs if you’re eligible. Additionally, “consider a balance transfer if the numbers work in your favor.” Some credit card companies offer 0 percent for 12 months, which will enable you to pay down your debt and pay less in interest.
No doubt, refinancing your debt could be a good idea if you are able to find better loan terms. Take a few minutes to shop around for better terms, such as a much lower interest rate, before you rule out this idea. A careful refinance could potentially save you a large chunk of change. Imagine heading into 2020 with lower monthly debt payments.
The past year has likely been a big challenge. But you can take action in the next few months to finish out 2020 on a strong financial note. Allow the momentum you build in the next few months to propel you toward greater success in the New Year.