Financial Recovery Tips from 2020 for 2021
It is very easy to put your goals on hold during a time of extreme uncertainty. However, this is an excellent time to reflect on and possibly even realign your financial goals from 2020 into 2021. If you lost your job or fell into an unexpected expense, you may be realizing how important an emergency savings account is. Maybe you wanted to pay off your debt last year, but your cashflow became tight. Or maybe you were putting off a meeting with a financial planner and did not think you could retire in 2020 anymore. Here are some helpful tips on how to recover from 2020:
1. Don’t Stress and Spend
During uncertain times, it is easy to find yourself falling down a deep rabbit hole on Amazon or noticing the flaws of your home, while spending every second of every day inside. It is crucial for your mental health to not stress during times of uncertainty and overspend. Sometimes even waiting a few days before you buy something can change your initial desires. This is a time to trust the financial plans that you have established and take actions based off those plans and not your emotions. Finally, before you make the purchases, make sure that they align with your goals and your budget.
2. Reallocate additional savings
Without the same travel or dining out opportunities as previous years, many people are discovering they have an unexpected positive cashflow. It is important to take advantage of this excess cash in the most optimal way possible. This may include increasing your 401k contributions, opening a Traditional or Roth IRA, opening a brokerage account, increasing your emergency savings, or paying off debt. At the end of the day, the most important piece is that you are saving. The best option will depend on your personal situation and should be discussed with a financial planner.
3. Take advantage of low rates
With fixed rate mortgages averaging all-time lows, this is the perfect opportunity to refinance your home. As of August, the average 15-year fixed rate was 2.54% and the average 30-year fixed rate was 2.99%. Last time rates were this close was in May of 2013, when the 15- year was 2.56% and the 30-year was 3.35%. When considering a refinance, it is important to consider the timeframe it would take for you to make up the amount of closing costs. However, everyone’s situation is different, and it should be discussed with a financial planner before any action is taken.
4. Prepay 2021 Residence Real Estate Taxes
Back then, prepaying real estate taxes could trigger the alternative minimum tax (AMT), but with a generous AMT exemption and a cap on deducting state and local taxes, AMT concerns are minimal. While this benefit can be reduced by the $10,000 overall cap on state and local taxes, by prepaying real estate taxes in 2020 that are otherwise due before the end of 2021, taxpayers can get a discount on their 2020 taxes.
5. Opportunity for Charitable Donations
Always remember that charitable gifts are 100% deductible to qualifying organizations. In previous years, charitable gifts were limited by a percentage of a person’s adjusted gross income. If you are feeling generous this year, keep in mind that you’ll be getting something in return as well.
Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.