(This column was released for publication on Dec. 16, 2020.)
In ordinary times, the New Year is when people evaluate themselves, making resolves – many of them financial – to improve their daily lives and/or to reach goals.
These aren’t ordinary times.
Setting goals and making resolutions feels hollow this year, as better times clearly lie ahead if society can control coronavirus and return life to a semblance of normal. Meanwhile, without a pandemic resolution, all of the New Year’s resolutions in the world won’t create a sense of being in full control of our destiny.
Thus, this year calls for a different year-end self-evaluation exercise, one that naturally leads to a desire to alter and improve future behaviors.
Just look at what you got right and wrong with your finances this year.
A study by Fidelity Investments released in early December showed that nearly two-thirds of Americans experienced a financial setback in 2020, with nearly 40 percent of the populace saying they will be in “survival mode” in 2021, defined as focusing “on the day-to-day as I try to get myself/my family through next year.”
There is a positive in the study results, with nearly three-quarters of Americans saying they expect to be in better financial shape come the end of 2021 than they’re in now.
Examining what went right or wrong helps to connect what happened – especially if it put you amongst Americans suffering financial setbacks – with the hope for improvement in the next year.
While there’s no ignoring the impact that the pandemic and its economic fallout had on many households, it would be inaccurate to blame all of those problems on coronavirus and to absolve consumers of all responsibility.
As the year comes to a close with Congress stalemated on any future economic stimulus and the potential for another stimulus check, I can’t help but think of some people I saw on Twitter who were bragging or debating about the ways they might blow the money.
Not everyone needed the stimulus money, of course, so using it frivolously didn’t have consequences for all, but it’s hard to believe the people on Twitter debating big televisions, replacing/upgrading their home gym – not starting one from scratch – buying pool tables or deciding if they wanted to buy marijuana or splurge on pot brownies could all be having second thoughts about now.
The folks who scrimped and saved with that money – who held it as long as possible or used it cautiously while they watched the pandemic playing out – presumably can breathe a little easier now.
Likewise, investors who panicked in February and March – or who were too nervous to put money to work in the market as fortunes turned by springtime – did themselves no financial favors.
In evaluating your financial picture entering the new year, considering whether you did right or went wrong in five key personal finance functions.
Saving: 2020 proved the value of emergency funds, dry powder and saving for a rainy day.
With so much mounting financial uncertainty plainly visible all around, this was a year when those who could save should have been upping their game, while those who were facing crises needed to scrape together whatever they could.
Evaluate your performance on whether you built/replenished/made the most of your emergency monies, how well you are positioned to get through the continued economic slowdown even if it lasts throughout 2021, and how prepared you are to face continued trouble.
If your savings habits exacerbate feelings of being in survival mode, that’s a sign of something done poorly. If they have helped you survive to this point – or if they are a big reason why you’re avoiding survival mode — keep up the good work and look for ways to do even better.
Spending: There may be no area where consumer habits changed more in 2020 than in how they spent money. With few opportunities for entertainment and leisure spending, surveys show that plenty of Americans were able to curtail their outlay of money just about everywhere except for the grocery store.
Yet there are also reports of consumers who spent their days online shopping. Buying “stuff” – and if you don’t need it, it’s almost certainly just stuff — can give people a sense of power in a situation where they otherwise feel powerless. Taking control of spending can be equally powerful emotionally, but it’s not as much fun.
Take a harsh look at your spending habits; review your credit purchases and see if your outlays – when reviewed in hindsight – have contributed to any current financial nervousness.
Investing: Double-digit stock market gains for 2020 are very much in line with what experts were calling for a year ago.
Obviously, the path to those results was unanticipated, but investors should recognize that the destination always has mattered more than the path being traveled.
Downturns have not been repealed, and there is good reason to expect that stock returns will moderate as the market and the economy ultimately reconnect as the recovery continues. Investors who short-circuited their investment strategy by getting jumpy this year need to reposition now so that they don’t feel compelled to move during hard times in the future.
Protecting: If coronavirus proved anything, it’s the need for a current will, health-care proxy and other key documents that everyone needs but no one wants to think about. No one wants to be a statistic, and too many people who were counted in the death toll died without a will.
Handling your affairs isn’t pleasant, but it also isn’t painful, and the peace of mind it creates is critical.
Coping: Financial stress can be unavoidable in the best of times; this year it was the only thing spreading faster than coronavirus.
If you couldn’t avoid it, consider how you can ease the emotional burden, whether it is taking advantage of available resources or talking with friends who are in the same boat.
Don’t let it build without solutions; don’t be afraid to talk about your situation or to seek help, and don’t let it get worse in 2021.
Chuck Jaffe is a nationally syndicated financial columnist and the host of “Money Life with Chuck Jaffe.” You can reach him at email@example.com and tune in at moneylifeshow.com.
Copyright, 2020, J Features