Almost everyone is waiting for 2020 to come to an end. The coronavirus pandemic and the economic upheaval it caused has impacted everyone. Many Americans were forced to dip into their emergency savings and put much of their 2020 financial plan on hold. To get back on track in 2021, here are six financial steps you should take before the end of the year.
1. Preview Your Tax Situation
If you received unemployment benefits, your tax bill might increase as these payments are subject to income tax. Check your budget now to be sure you have the money to cover it.
- Take advantage of all tax-deductible and tax-credit opportunities
- Make charitable donations
- Spend the money in your flexible spending account (FSA). This is tax-free money if you use it to cover eligible medical expenses not covered by your health insurance. You can also use your FSA to pay for qualified dependent care. Ask your benefits director about the deadline for exhausting your account.
2. Increase Liquidity
COVID-19 taught the importance of saving for emergencies. You never know what can happen. Make your emergency savings account a priority. Try to keep at least enough to cover three months of living expenses. If you can do it, six months is better.
Committing yourself to fund an emergency savings account is a significant financial step you should take before the end of the year.
3. Retirement Savings
Max out your 401(k). The 2020 contribution limit is $19,500. If you’re over age 50, you can make an additional $6,500 “catch-up” contribution.
If you don’t have a 401(k), fully fund your Roth or traditional IRA. The maximum contribution for 2020 is $6,000, and if you’re 50 years or older, you can make an additional contribution of $1,000.
If you started freelancing or joined the gig economy, consider opening a retirement account through your business.
4. Check Your Credit Report
According to Motley Fool, one in five consumers find an error on their credit report. If you took advantage of Black Friday and Cyber Monday sales, shopping online with your credit card or in stores, thieves might have stolen your data. Purchases racked up in your name, causing high balances that throw off your credit utilization ratio can block you from getting credit when you need it. If you don’t check your report, you’ll never know until it’s too late.
You’re entitled to one free report from each of the three credit bureaus. Reviewing your credit report is a critical financial step you should take before the end of the year.
5. Make the Most of Your Employee Benefits
Typically, the end of the year is open enrollment season for many employer-sponsored plans, including
- Health insurance
- Dental and vision coverage
- Disability insurance
- Employee benefits, such as transportation reimbursement and education assistance.
Take full advantage of everything your employer offers—you’ll save money.
6. Write Financial Goals for 2021
Review your 2020 financial plan. Identify unmet goals, not due to the coronavirus.
- Are they still relevant?
- Outside of COVID-19 disruptions, were your income and expense projections on target?
Set realistic, achievable, and measurable financial goals for 2021. Think short-term and long-term and estimate what it’s going to cost to turn your dreams into reality.
Create a new budget for 2021 that reflects any increases in debt or expenses and your anticipated income for the coming year.
- Did you take on more debt in 2020? Create a debt-reduction strategy.
- Do you need to boost your income or reduce expenses?
These six financial steps you should take before the end of the year will help you leave 2020 behind with positivity and optimism. You may not have accomplished everything you wanted this year. But if you make these strategic money moves now, you’ll be better prepared for whatever comes your way in the months ahead.