Five Financial Things To Do Before Year-End

September 1, 2020|Melissa Joy, CFP®, CDFA®

woman fanning money in front of her face

While markets have been resilient, 2020 has been an interesting year, to say the least. With an economic recession, global pandemic, and rather divisive election season underway, it may be tempting to sit back and wait for the new year to make any moves. As the end of the year approaches, here are five financial tasks to add to your to-do list.

Article Contents

Evaluate your cash flow

This is a year where the spending habits of almost everyone has changed. Has your job become remote? Many people have had their hours reduced or their jobs furloughed due to COVID-19. As more schools move to virtual instruction, some dual-income couples have made the tough decision to have one parent stay home. You might not be paying for gas or going out to lunch, but if you are cooking 3 meals a day for your family or paying for childcare, your expenses may have increased during the pandemic. It is important to evaluate your new spending habits and cash flow and make sure you are on top of your financial situation. If you find you have more cash available in your budget, now would be a good time to pay down debt, increase savings, and make sure you are maxing out your retirement savings.

Build up Emergency Savings

2020 has been a good reminder of why it is important to have emergency savings. Those who lost income during the COVID shut down were lucky if they had cash on hand. Now would be a good time to build back savings if you dipped into your reserves. Savings needs are different for everyone, but a good guide is to have 3-6 months of expenses covered for situations like these. If money is tight, start with a smaller amount monthly into emergency savings to make your goal feel more attainable. If you are having trouble saving and find yourself tapping into your reserves for non- emergency expenses, be sure to separate checking and savings accounts and make it harder to access those emergency funds.

Look to take advantage of record low interest rates

We are at historic low interest rates so now is the perfect time to look at refinancing debt. By refinancing or consolidating high-interest debt, you will pay back less over time and can chip away at your debt totals faster. With the average 30-year mortgage rates currently under 3% you may benefit from refinancing your home even if you purchased in the last few years. You might be able to refinance your mortgage to a 15-year and keep your monthly payment around the same as you are currently paying on a 30-year mortgage. There are costs associated with re-financing so it is important to consider your current mortgage rate, how long you plan to stay in the home, and your overall financial picture.

Update your retirement snapshot

While many people plan to work until age 65, the recent pandemic has caused some to consider an earlier retirement due to safety and health concerns. When considering an earlier retirement, it is important to look at your updated retirement snapshot. What does your retirement look like? Are you willing to downsize? What health care options are available to you until you are eligible for Medicare? Financial planning is something that is meant to be adaptable, but if you are not updating your plan as life circumstances change, you will be less prepared to make important retirement decisions. In financial planning, we use a formula for every individual, based on how much money they have saved up as well as their income needs and life expectancy. If you do not have a financial advisor yet, consider finding you one to help you with your retirement snapshot.

Get your Estate Planning Documents in Order

If you have been putting off getting an estate plan in place, let COVID-19 be the nudge you need to get your wills and trusts in good order. If the worst were to happen to you, would your family be taken care of financially? Maybe you have assets to care for your loved ones, but making sure the assets are distributed the way you want and determining who will be in charge of distributing them is where having an estate plan can make all the difference. As life circumstances change, your estate plan needs to be updated.

Melissa Joy, CFP®, CDFA®

Melissa Joy, CFP®, CDFA® is President and Wealth Advisor at Pearl Planning. Reach out for a call today at 734.274.6744.

8031 Main St. Suite 302 Dexter, MI 48130

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