Reflect and Prepare

Michelle Barron |
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Every January, I like to reflect on the past year and think about lessons learned, and dream about what lies ahead to help lay the foundation for my financial roadmap. Even though we are two weeks into the new year, don’t let this opportunity pass you. It’s not too late, reflect, and prepare.

No matter what stage you are in your life, I believe 2020 was uniquely challenging for everyone. As we get older, most of us recognize that the difficulties hold valuable life lessons. 

This year is no different. If 2020 has taught you nothing else, you should expect the unexpected. Think back to all of the plans that had to be changed, rescheduled, canceled, or postponed this past year. Coupled with government-mandated shutdowns, a 30% market dip, followed by all-time market highs, the expression expect the unexpected becomes an understatement. Obviously easier said than done, even for someone like me who ponders all of the possibilities the future could hold and helps clients build contingencies. Yet being prepared for the unexpected allows us the opportunity to find creative solutions to challenges that come up along the way. Consider the following ways to be prepared as we start the new year.

Secure the Present 

Staying on track for the future possibly means ensuring that bumps in the road right now won’t have long-term repercussions. 

  • Beef up your emergency fund

A good rule of thumb is three months of expenses – all expenses, not just the big ones, and including the amounts you regularly contribute to savings. If your emergency savings is short, consider using the latest round of stimulus as a boost. Or review your portfolio. The markets are hitting all-time highs; consider using some of your profits to jump start your cash reserve. Remember, you don’t want to have to sell when a crisis hits; you may be selling into a falling market. 

  • Review your insurance

Do you need life insurance, and if so, do you have enough? The guide here is 10-15 times your salary. But don’t stop at life insurance – depending on where you are in your journey, you may need to consider disability and long-term care insurance. 

Reevaluate your Goals

As we head into 2021, you should reevaluate our goals. Goals can change, sometimes as frequently as my almost teenage daughter. As events and experiences happen in our lives, the things we dream about and desire change. What was once your dream may now be outdated or obsolete.

Write out the things you dream about. Ask your family members what they dream about. 

Talk it over, list them out, and organize your family’s aspirations. You’ll be surprised at what you learn about each other. Finally, divide the paper into one, three, five, ten, and ten+ year sections. Keeping the goals that are the most meaningful, write them on sticky notes and put them where they belong on the timeline. 

It’s important to review your current goals and align them with your financial assets.  

Map Your Investment Buckets to Your Goals

You now have a plan for things you want to fund in the short-term and for longer-term goals. Arrange your investments so that short-term goals are in low-risk accounts in which the growth will come mostly from you adding savings. Longer-term goals should be funded with investments appropriate to the time horizon, with the ability to withstand more risk on the longer end. 

Review Your Investments

The last year was not a drill. When you opened your investment accounts, the paperwork you filled out created a risk tolerance based on hypothetical market moves. Looking back to your March statements, you can see what risk can mean in the form of investment losses. Now that you’ve experienced the real downside risk, consider your comfort level during that time period.  Where your investment losses keeping you up at night? If so, make any changes you need to ensure that you can stay invested when bumps hit and still sleep at night. Now that the markets have recouped losses and then some, this is the perfect time to reevaluate and make the necessary adjustments.

It’s Not Just What You Make; It’s What You Keep

We have to remember that investing and the returns that we receive are just one of the many tools in the toolbox that help us achieve our dreams. Another is the most dreaded six-letter word in finance: budget. 2020 provided another opportunity for us to learn and evaluate. 

If you are anything like me, my spending was dramatically reduced during March and April. Some products, services, and experiences I missed during those times, I realized I didn’t need or appreciate others. Yes, you should keep track of your budget, what your income is, and how you are spending. Make sure your money is funding the things that matter the most to you.

Less than 15 days into the new year, we already have some surprises, a blue wave, the storming of the capital, challenges to our freedom of speech. While I don’t know what the rest of the year will bring, with some thoughtful preparation, I say bring on 2021.

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation