Financially thrive in a post-pandemic world with these actionable steps. Reassess your goals and take proactive measures to improve your financial situation right now.
Emerging from the pandemic is a chance to rethink your financial objectives and what you truly want for your future. This past period has shifted perspectives on both personal and financial aspects of life. Now's the time to evaluate your dreams and the financial actions needed to redirect your path.
This experience might have altered your work-life balance, prompting a desire to avoid long commutes. If remote work is an option, perhaps you're considering relocating for a more spacious home, even if it's farther from the office. Alternatively, you might be drawn to urban living as more activities resume. Focusing on early retirement, launching a business, or transitioning to part-time work, or pursuing a passion project are all possibilities. The lack of travel may have ignited a strong desire to explore more in the future.
All these choices carry financial consequences. If you're contemplating significant changes in your living situation, work environment, or leisure activities, it's time to start making moves toward achieving those aspirations and financially thriving in the life you envision. Reflect on your new goals and the strategies you'll employ over the next decade or two.
What are your housing aspirations?
Are you looking to buy a bigger home, downsize, or simply change your surroundings in the coming years? Do you want to be nearer to family or discover a new city? Would owning a second home, like a cabin or lakeside retreat, appeal to you? Clarify your housing desires and set specific objectives – determine a timeline and savings target for a down payment, then establish a monthly savings plan. Keep an eye on your credit score, as it's vital for securing the best mortgage rates. Access your credit report for free at www.annualcreditreport.com and explore credit enhancement resources at MyFico's education guide (https://www.myfico.com/credit-education).
Alternatively, you might want to focus on paying off your mortgage early to lessen future financial burdens. Look into refinancing for today's low rates and consider contributing extra each month to speed up your repayment.
Have your retirement plans shifted?
Has the pandemic experience made you value time away from work more? If so, now's the time to prioritize saving for an earlier retirement. If your employer offers a 401(k) or similar plan, contribute enough to secure any matching funds. Additionally, consider a Roth IRA for tax-free savings that also provides access to funds if needed. In 2021, you can contribute up to $6,000 (or $7,000 if over 50), with tax-free growth and earnings withdrawal after age 59½, provided the account is established for at least five years. Withdrawals of contributions can occur anytime without penalties, serving as a potential emergency fund. To contribute to a Roth IRA in 2021, your modified adjusted gross income must be below $139,000 (single) or $206,000 (married filing jointly), with phase-out limits starting at $124,000 and $196,000, respectively. If you receive a tax refund or stimulus payment, consider allocating some of that to your Roth IRA.
Do you aspire to a dream job?
The pandemic prompted many individuals to reevaluate their priorities and embrace living in the moment. You might be drawn to charitable work, starting your own venture, or seeking a fulfilling part-time role. Many who faced job loss or furlough reflected on what truly matters. If you love your current position, you might not rush into retirement. Continuing to work, even part-time or freelance, can extend your retirement savings.
Begin outlining a timeline for your career transition and the steps to facilitate it, such as networking, obtaining relevant certifications, or launching a freelance endeavor that could evolve into a full-time career. The surge in online education makes it easier to learn without the burden of commuting. You might qualify for the Lifetime Learning Credit for graduate or certificate programs, potentially worth up to $2,000 in 2021, provided you attend an eligible institution and your modified adjusted gross income is below $90,000 (single) or $180,000 (married filing jointly).
Establish an emergency fund for unexpected challenges
The pandemic highlighted that unforeseen expenses can arise despite careful planning. Building an emergency fund is crucial for addressing unexpected financial needs. Many families faced sudden childcare costs or struggled to manage bills after job loss. Whether it's additional medical expenses or the need to support aging relatives, an emergency fund can mitigate the impact of these surprises. Aim to save three to six months' worth of expenses in a readily accessible account, such as a money-market account. Any extra funds from tax refunds or stimulus payments can enhance this safety net. Those with emergency funds found them invaluable during this period, emphasizing the importance of having cash reserves. Be sure to replenish your fund if you had to dip into it.
Consider your future living arrangements
As challenging as it may be, planning where you'll want to live as you age is essential, particularly in your 50s and 60s. The pandemic prompted many to reconsider their aging plans. Observing nursing home experiences may inspire a desire to remain in your home longer if assistance is needed. You might prefer to relocate closer to family or to a retirement community that offers various care options. Long-term care can be costly, especially if you require in-home caregivers. Investigate long-term care insurance or hybrid policies that provide both care and life insurance, or build savings for these expenses. Preparing now can enhance your options later. Insurance premiums have been rising, but using a health savings account pre-retirement allows tax-free withdrawals for long-term care and other healthcare costs. Consider making home improvements that enhance accessibility as you age. Planning for these expenses now gives you more choices in the future.
