We are now about six weeks to the end of the nightmare that is 2020. Equipped with the lessons we’ve learned, let’s prepare and move differently in the coming year. In order to improve your finances, you will need to improve your money management. While this cannot be achieved in a day, you can start by getting on the right track in the coming year with a good plan.
We hope that 2021 will be better than in 2020. However, we can only guess what lies ahead for us next year basing on what has transpired in 2020. If the economy does not recover well into 2021, here are a few things you can do to prepare your finances for 2021.
Make A Financial Plan
Money needs to be put to good use in order to serve its master well. The way you manage your money will greatly influence your quality of life. If anything can be learned from 2020, is that a financial plan is absolutely essential to ensure that we are prepared for emergencies or any other unpredictable events. A person who makes financial planning a priority can avoid consumptive debts and total financial destruction resulting from unexpected events such as a pandemic, critical illness and more.
All in all, financial planning is merely a guide to help make your goals, and financial dreams a reality. A financial plan will help you save more, and accelerate the processes to achieve your financial goals.
Get your Financial Plan prepared by us.
Boost Your Income
If anything can be learned and relearned from 2020, is that one stream of income is one step away from poverty.
Hence, it is worth increasing your sources of income for financial security and quicker goal realization. The best way to achieve this is to set up passive income streams or start a side hustle.
Learn More: How to Produce Income From Investing Forever
Improve Your Yields
We are all looking for ways to earn higher returns from our investments and avoid costly mistakes. There are many tried and tested ways to do this, and you can include them in your investment strategy for the upcoming year. As always, consult your financial advisor, exercise due diligence and conduct your own research before making any investment decision.
Choose equities over Bonds and bonds. As the market starts to recover from the pandemic, it will be a great time to invest inequities. Although they carry a greater risk than bonds, a well-balanced portfolio can offer a great return at low risk.
Opt for passive portfolio management as a way to reduce investment cost that will eat into gains.
Pick value over growth stocks. Value stocks are known to outperform growth companies internationally. Several value companies do offer dividends to investors, which can increase your yield.
Diversify. Add multiple asset classes that are different in nature to your portfolio with appreciate percentages that reflect your risk appetite. An efficient mix will greatly reduce your risk and improve expected return.
Rebalance. A lot of portfolios have been pushed off track during this period of the pandemic and therefore rebalancing is crucial. Rebalancing is essentially the act of readjusting a portfolio back to its original allocation. Read more below.
Learn More: How to Make 20% On Dividend Yields Every Year
Rebalance Your Portfolio
This year has been a volatile year. Many investors have had to rethink and readjust their investment strategies to push back on track their portfolio and return them to their original level of risk.
There are three broad types of asset categories: stocks, bonds, cash and other securities. Take stock of what you hold in these and match to your initial plan.
You can do this by taking a look at the most recent fund report to get a breakdown of how much of your fund is in stocks, bonds and cash. Once you’ve totalled your holdings in each asset class, calculate the percentage of each relative to your entire portfolio.
Depending on your results, you may need to reset your portfolio to match your investment strategy. This can be down in the following ways:
- Increasing your investment in the underweighted portion of your portfolio (buy low).
- Selling over-weighted portions and buying more of the underweighted class (sell high, buy low).
- Selling only overweight asset class, to bring it back to balance (sell high).
Why rebalance? Rebalancing is an effective way to automatically buy low and sell high without the risk of your emotions affecting the investment decision.
Learn more: 3 Paths Of Wealth Accumulation
Get Insurance
The reality of COVID is becoming real and real every day for many of us. Some of us have lost family and friends. Having insurance – health, life and critical illness insurance – will protect you and your family from adding or having debt or any other financial losses during this period.
For married couples, consider buying life insurance, health insurance and insurance to cover serious illness. As for singles, health insurance or insurance for critical illness is highly recommended.
Even though your employer covers health for example, in most cases the money still isn’t enough especially for critical illness or you get laid off at this time.
Learn More: How Much Life Insurance Do You Actually Need?
All in All
Let’s remain optimistic about 2021.
As you prepare for the coming, here are some questions to ponder and reflect on. You can use them as guide for the coming year.
- How is my financial condition now?
- Have I met all my financial goals for the year?
- Are my mid to long-term financial goals on track?
- What parts of my finances can I improve in the coming year?
As you reflect on this year, I wish you all the best in the coming year. I pray that all your high hopes and dreams of improving your financial situation come true. Be it paying off your debts, cutting your expenses, saving and investing or generally managing your money better – I hope it all works out for you.
For whatever reasons you failed in keeping your financial goals in the past, this coming year, let it be different.
You’ve got this!
Image credits: Top by Olya Kobruseva from Pexels
Disclaimer: This information is provided to you as a resource for informational purposes only, and hence should not be treated as financial advice.