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Saturday, January 22, 2022

Your Post-Pandemic Financial Checklist | Saving and Budgeting

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The COVID-19 pandemic isn’t over yet, but with vaccines rolling out across the country, the end may be in sight. While it’s not time to be lax about public health measures such as social distancing and mask wearing, now is a good time to start thinking ahead financially.


Here are seven items to put on your to-do list to prepare for life post-pandemic:

  • Review your current financial situation.
  • Consolidate debt and refinance your mortgage.
  • Build emergency savings.
  • Rebalance your portfolio.
  • Estimate future expenses.
  • Convert retirement funds to Roth accounts.
  • Make changes to your estate plan.

Review Your Current Financial Situation

For most people, the pandemic affected their finances in some way, either because they lost income or saved money by staying home. Families may also have adopted costly new habits, such as online shopping, expensive hobbies or getting takeout dinners more frequently.

“When things are unsettled, it’s easy to slip into an anything-goes mentality,” says Marco Sarkovich, associate attorney with Slate Law Group in San Diego.

Now is the time to step back and take stock of how your financial situation has changed over the past year. Consider things such as whether you are spending more, changes to your income and the balance in your savings and retirement accounts. Use this information to then rework your budget as needed.

Consolidate Debt and Refinance Your Mortgage

If you have debt, take advantage of the current low-interest rate environment to save money. For example, you may be able to take out a personal loan to pay off high-interest debts or move balances to a credit card with a low introductory rate.

“In my opinion, there has never been a better time to consolidate debt,” says Greg Hammer, president of Hammer Financial Group in Schererville, Indiana. “They are practically giving money to people when it comes to refinancing.”

Thanks to rising property values, you may be eligible to refinance for more than your current mortgage balance and use the extra cash to pay off high-interest credit cards or loans. Even if you don’t need to consolidate debt, refinancing a mortgage could result is considerable savings.

Build Emergency Savings

The pandemic was especially difficult for those with no emergency savings. “The majority of Americans were not prepared to go months on end without income,” Sarkovich says.

Make building – or rebuilding – your emergency fund a priority as the pandemic winds down. If your budget barely covers basic expenses, look for other sources of money that could be used for savings, such as stimulus money or a tax refund.

Later this year, parents are also expected to receive advances on next year’s child tax credit. That can be another source of money to set aside for a rainy day.

Rebalance Your Portfolio

The markets took a wild ride in 2020, with stock prices dropping dramatically and then making an almost vertical rebound.

“Even the best of plans, of course, didn’t include a global pandemic,” says Brian O’Leary, wealth advisor and senior analyst with Aline Wealth, a wealth management firm with offices in New York and Florida. As we return to a sense of normalcy, rebalance your portfolio to ensure it has the proper mix of stocks, bonds and other securities based on your goals.

This is also a good time to review how you reacted to last year’s market fluctuations. “If you jumped out (of the market), that is a sign your risk tolerance was off,” according to O’Leary. Work with a financial professional to ensure your portfolio reflects your comfort level when it comes to market volatility.

Estimate Future Expenses

While gasoline prices have been rising, the good news is that the cost of most consumer goods has remained relatively steady in 2021. “So far this year, inflation rates have been pretty low,” Sarkovich says.

However, inflation isn’t the only factor affecting your family’s costs. For instance, remote work arrangements may come to an end, sending you back to the office and requiring you to find after-school care for children in the house.

Consider what your expenses will be in the months to come and weigh that against your current income. If you think you’ll have a shortfall, don’t wait to make changes. Start adjusting your spending now to ensure you can more easily transition to your expected post-pandemic lifestyle.

Convert Retirement Funds to Roth Accounts

If you have money in a traditional 401(k) or IRA, converting as much as possible to Roth accounts could be a smart move. By moving money to a Roth account, money can grow tax-free and be withdrawn tax-free in retirement. Cash left in a traditional account will be taxable in retirement.

The downside to a conversion is that regular income taxes must be paid on the converted amount. However, since you’re going to have to pay taxes on the money at some point, Hammer suggests this is a good year to do it. “Taxes are probably the lowest they’ve been in a long time,” he says.

The tax cuts enacted by the Tax Cuts and Jobs Act of 2017 will sunset – that is, expire – in 2025, and some high earners may see their tax rates increase before then.

Make Changes to Your Estate Plan

The COVID-19 pandemic has claimed approximately 550,000 U.S. lives so far, and the sad reality is that many people have unexpectedly lost loved ones. If you find yourself in this situation, you may need to update your estate plan including your will and beneficiaries on life insurance, bank accounts and retirement funds.

No one knows exactly when the pandemic will end or what life will look like after it. However, it isn’t too early to start looking forward to that day and preparing your finances for whatever comes next.

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