Election season is always chaotic, but the Presidential election of 2020 may go down in history as one of the most surprising. Whatever side of the spectrum your politics fall on, it’s pretty safe to say you didn’t envision the results playing out exactly as they did.
Either way, life really does go on, and this is especially true when it comes to your finances. While politicians on both sides can make it easier (or more difficult) to save for retirement, or change up the tax code so you pay more or less, you still have ultimate control in most areas of your financial life — whether you want to admit it or not.
6 Ways to Foolproof Your Finances for 2021
Most of us can agree that 2020 has been one heck of a ride, but it’s not over yet. If you want to do something that will put you in a better financial position, the following steps are a good place to start.
Pay Down High Interest Debt
If you have any extra cash after you pay bills, you should consider using some of it to pay off high-interest debt like credit card debt. The average credit card interest rate is currently over 16 percent, so any amount you can pay down will net you a similar return in savings.
Not only can paying off debt save you money on interest each month, but it can also help decrease your fixed monthly expenses. After all, each credit card you pay off is another bill you’ll never have to deal with again. And if something unexpected happens with your job or your income, having fewer bills to cover is always good news.
Build Up Adequate Emergency Savings
If 2020 has taught us anything, it’s that anything can happen. Obviously, almost no one envisioned spending the year quarantining at home, schools and businesses shut down nationwide, and so many people facing health consequences or death from a virus, right?
While the loss of life has been too much to bear, the financial consequences of the pandemic have also been devastating for so many. On top of mass unemployment, so many people have had to drain any savings they had just to keep the lights on and food on the table.
With that in mind, you should take the time to start building up an adequate emergency savings fund if you don’t already have one. Most experts agree with having at least three to six months of expenses set aside in a high-yield savings account, which you can use to cover living expenses if you face a job loss, a loss in income, or a health crisis.
Check Your Insurance Coverage
Now that the election is behind us, it’s also a good time to take stock of any insurance coverage you have. For example, you should spend a few hours looking into auto insurance and homeowners insurance, taking the time to compare rates for policies with the same types and levels of coverage.
After enduring the pandemic for most of this year, you probably know by now that life insurance is another key component of your financial plan. If you don’t have any life insurance, now is an excellent time to shop for an inexpensive term policy to get you started. If you do have life insurance coverage already, figure out if you have enough.
Most experts agree you should have at least 10x your income in life insurance protection, but you may want to buy more if you have multiple kids, you’re young and still in your working years, you have a mortgage to pay off, or you want your family to be financially set if you face an untimely death.
Boost Your Retirement Savings
The election created a lot of uncertainty for investors, but hopefully most of the huge stock market swings are behind us. Either way, now is as good of a time as ever to figure out if you could be saving more for retirement, and if so, how much.
For 2021, the contribution limit for workplace 401(k) plans stayed at the same $19,500 from 2020. Individuals ages 50 and older can also make the same $6,500 “catch-up contribution” in both years.
You can also contribute up to $6,000 to a traditional or Roth IRA for either (or both) years, which can help you save even more for retirement. However, you should note that your ability to deduct contributions to a traditional IRA on your taxes hinges on your income and several other factors. Roth IRA contributions are also limited to individuals whose incomes fall under specific thresholds set by the IRS, although all contributions are made on a post-tax basis. This means you’ll contribute after-tax dollars now, but you won’t have to pay income taxes on distributions once you begin taking money out after age 59 ½.
Check Into Refinance Options
Now is also a great time to consider refinancing any major debts you have. After all, interest rates have been the lowest we’ve ever seen for some financial products.
Also look into whether you should refinance your mortgage, keeping in mind that the interest rate for a 30-year home loan could be as low as 2.5% depending on your credit score and other factors. You could take advantage of low rates to lower your monthly mortgage payment, reduce your repayment timeline, or both, but only if you take the initiative to see if you qualify.
Create a Long-Term Investment Plan
No matter what you do, sit down to create a long-term investment plan if you don’t have one already. Regardless of who the President is, and no matter how long the pandemic drags on, you should have a specific, written plan you can stick to and have faith in no matter what the future brings.
If you aren’t sure how to get started, then make an appointment with a fee-only financial advisor who can help you figure out your next best steps. The year 2020 has tested most of us in one way or another, but you don’t have to plan your future without outside help.
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