If ever there was a lesson to be learned at the end of a calendar year it’s this, you have the power to choose, learn, and then choose again. So, if you’re unhappy with your financial situation at the end of 2020 you have the ability to analyze your decisions and make different ones in the months to come. For many, the year 2020 has been a tough one when it comes to money, while others may feel secure based on the outcome of the year. For those of you less than happy with the way you’re heading into 2021, here are a few possible changes to consider.
Do you have one? If you do, there’s a good chance you accessed it during 2020. If you didn’t have one and needed it this might be your biggest money goal for the New Year. The purpose of an emergency fund is to protect you from the unexpected. We cannot predict what will happen in the future, and setting aside a little money in case we get into a tight spot creates peace of mind. Whether your emergency fund is $500 or $5,000, you’ll be less stressed about negative news if you have a cushion to fall back on. Ideally, your emergency fund should be 6 months’ worth of living expenses. That’s tough to do if you live paycheck to paycheck, but not totally unattainable. The best way to build up an emergency fund is to budget for it just like you would your rent, mortgage payment, insurance, utilities, etc. Even if you just set aside a small amount each paycheck, it will add up over time!
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Once you have the fund it’s important to only access it if you really need it. Ask yourself, is the need to utilize funds out of your emergency fund unexpected, immediate and absolutely necessary? If you couldn’t predict the need, and daily life requires you to make a purchase, repair something like a furnace or air conditioner, then there’s a good chance you’ll need to tap into your emergency fund.
Be sure to put your emergency fund in a safe place, like a bank, where the money cannot be easily taken by a family member, friend, stranger, or used accidentally by you. FDIC insurance is another added safety feature of storing your money in a bank.
The Backup Plan
Whether you have an emergency fund or not, the next step is to create a plan of action in case the worst happens. When it comes to finances, one of the worst things that can happen is losing your lob. Maybe you were laid off this year and had to access your backup plan to help pay the bills. Part of the trouble with 2020 was that many businesses struggled to stay open, and when they couldn’t pay their employees to stay home it left many Americans in the lurch, looking for a way to make some extra money to pay the bills. It’s a good idea to at least have an idea of what you’re willing to do in the event that you lose your job and need to move on to plan B. Plan B might be detailed, or it might just be a vague idea of where you need to go to look for work. The bottom line is that it’s very helpful to have an idea of what the next step is when you learn that you’re out of a job.
Since finding a job can take some time, it’s important to make sure that your emergency fund is in place, but the nice thing about the backup plan is that it’s easy to fall back on it when you don’t quite have enough saved, or have to access it too often. In the unlikely event that you’re hit with one bad-luck event after another, the backup plan is just another way to manage the stress and anxiety that comes with bad news.
Annual Insurance Review
It’s a great idea to review your insurance policies and premiums once a year, so if you haven’t already done that this year this may serve as a reminder. You can save money by bundling your plans as well, so consider that as an option for saving a few dollars.
Have you considered Life Insurance? It’s also a good time to review your coverages and the details of your plan to make sure your loved ones would be covered in the event that the worst happens. It’s never very fun to think about, but it’s the best way to ensure that your family is well-cared for in the future.
Investment Risk Review
Finally, if you’re investing money, it’s a good idea to review your risk tolerance. Your net worth, age and retirement plans all go into this decision. If you’re near the age of retirement you’ll want to ensure that your funds are invested in less risky investment options. This was a problem for some during the year 2020. The volatility of the markets in 2020 caused many people to rethink their retirement plans. Others found themselves jobless and uncertain about their plans for retirement. The bottom line is that it is good to involve a professional in the planning process and our investment professionals can help. Visit our website at https://centralnational.com/personal/investments.asp to find an investment advisor near you.
Maybe you’re not even close to considering retirement. Maybe you’re just working on your emergency fund in 2021. The important thing is that you’re working toward financial stability, and sometimes that means making small steps in the right direction, rather than leaps and bounds. And it’s easiest to do either of those things if you’re not forced to make financial decisions while under extreme stress. All of the tips above are geared toward helping you create an environment where you aren’t forced to do that. Whatever the case may be, we hope you’ve found a useful tip or two here today and will consider giving us a call if you have questions.