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How to Prepare Yourself (& Your Money) for COVID-19 in 2021

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How to Prepare Yourself (& Your Money) for COVID-19 in 2021

Cuerpo

Many people experienced economic or personal shocks in 2020. There were extensive job losses, thousands of businesses closed, astonishing death tolls and even larger numbers of people hospitalized or unable to work because of COVID-19. The economy reacted to all this trouble by slowing down, leading to a virus-induced recession.

The economy is recovering. Markets came back quickly and some jobs have returned, even though unemployment remains high. Now, the second wave is upon us. While big strides are being made on a COVID-19 vaccine, the likelihood of it being widely distributed in the next few months is slim.

Having been caught largely unaware in 2020, how can businesses and individuals financially prepare for 2021? While it’s a large undertaking, it’s achievable if people make solid financial plans and stick to their budgets.

Plan, plan, plan

Planning to survive harsher setbacks will be essential for getting through another COVID-19 wave financially intact. The first task is to make sure you have an emergency fund in place, preferably of up to a year's worth of expenses in cash or highly liquid investments.

To realistically accomplish your savings goal, especially when your income is variable, save a percentage of your income rather than a set figure. Set a do-able percentage and follow it religiously to provide a nice cushion to fall back on. Additionally, people should reduce their debt loads and try not to take on any new significant debt this coming year.

Finally, everyone should re-evaluate their well-prepared financial plans regularly as 2021 goes on to make sure  they’re in the best financial situation possible. Where do you start? Here are five steps to consider.

financial plans
1 Take a look at your budget

To optimize financial plans, review regular expenses and cut any unnecessary items. It's easy to forget automatic payments, and those unwatched streaming channels can add up to a lot of extra money going out annually. It’s important to review these expenses to make sure the items paid for are actually used. Otherwise, cancel or discontinue them.

People should also create a plan for if or when the worst occurs. Your bare-bones budget should only include what needs to be spent to stave off catastrophe until better times arrive.

2 Next review your portfolio

Certain stocks took a particular beating this year, while others – such as general health care and medical stocks – did well. It’s a good idea to review and fine-tune financial portfolios now while there’s still flexibility in place for 2021. Given the interest rate environment, consider planning for other portfolio income, too. For example, you could look at buying publicly traded real estate companies. Although there are still risks that should be considered on a case-by-case basis, many of these names have sold off due to the pandemic and are trading at attractive values.

Equally important in times like these, avoid reacting solely out of fear when drastic market shifts occur. Financial advisers can help those worried about their stocks and explain what can be done without reacting out of panic.

3 Max out your retirement savings

Many individuals discovered, as their jobs or employers disappeared in 2020, they were suddenly and unexpectedly retired. Given ongoing risk, retirement savings must be increased to the fullest extent possible. Savers may be using them far sooner than expected, as some people have decided it’s worth it to retire early.

Those who’re already retired and are approaching 72 next year should also prepare for required minimum deductions in their financial plans. If not made timely, RMDs can have devastating financial consequences.

4 Review your tax situation

If April could be holding any surprises, it’s worthwhile to anticipate and deal with them now. According to the IRS, unemployment compensation, including the extra $600 per month from the federal government, is taxable. Also consider whether liquidated investments might have had an impact on your tax situation.

Finally, for those who expect a refund, it’d be good to file as early as possible and get those funds in hand for savings or investment.

5 Review insurance

When times are uncertain, it’s vital insurance coverage be adequate and up to date. Life insurance should be in place, especially where there are minor children, in case one or both parents are no longer able to contribute income to the family. Additionally, review health insurance to make sure the pandemic won’t cause calamitous expenses even careful planning won’t cover sufficiently.

Finally, where the climate requires, make sure homeowners and flood insurance are updated to guard against disasters that may occur regardless of COVID-19.

In sum, 2020 caught everyone by surprise. A thriving and healthy market dropped like a stone in a few days, job losses piled up fast, and businesses failed left and right. As 2020 turns into 2021 and COVID-19 appears ready to strike heavily again, it’s possible – and essential – to plan for the fresh developments that may be around the corner. Making financial plans, building up savings and reviewing all the relevant situations can make surviving another plague year an achievable goal.