As what feels to many of us like the longest year ever finally draws to a close, it is time to start thinking about 2021.
Even though there seems to be good news in the way of a viable vaccine, the unfortunate reality is that it will still be a while before the COVID-19 pandemic is finally brought under control, and any semblance of pre-coronavirus normalcy can return. That means that the economic uncertainty and volatility in the markets that have gone on since the virus first came on to the scene, are not likely to disappear anytime soon. Faced with that reality, here are a few things to consider on the financial front when planning for the year ahead.
- Before the new year begins, take a close look at your financial situation and determine exactly where you stand. That means tallying up everything you have in savings, as well as any outstanding debt– from credit cards to longer-term debt such as mortgages, car loans or home equity loans. Identifying any areas where you can cut costs now will make it easier to do so if you experience a pandemic-related job loss or other financial difficulties in the year ahead.
- While the coronavirus has been a financial nightmare for many people, for those who are lucky enough to have held on to their jobs and avoided financial difficulties, 2021 may actually be the perfect time to significantly boost savings or retirement investments. Given the inability to gather with friends and family or travel, most people have seen their monthly expenses decline significantly since the pandemic began. If you are within that category, why not take advantage of the situation and increase the amount you have set aside for your rainy day fund and step up the percentage of your income that you are investing for retirement. With many stocks still suffering due to current conditions, now might be a good time to increase long-term investments that are likely to experience significant gains once the coronavirus has run its course.
- Take the time now to determine how much you should actually be putting into flexible spending accounts for the coming year, whether for medical purposes or childcare. Given the need for social distancing, many people have put off anything but essential medical visits and have seen their healthcare spending drop below what they had previously anticipated for 2020. Determine whether it makes sense to max out the amount you contribute to a Flexible Spending Account (FSA) and whether you are truly likely to spend that money or not. The IRS has adopted new rules because of the pandemic relating to allowable rollover amounts and grace periods for the 2020 plan. So check with your employer to see if either of these new rules will apply to your situation.