April marks the beginning of National Financial Literacy Month, which was created to highlight the importance of financial education, wellness and healthy spending habits among Americans. This year, the message of financial literacy is especially significant as we navigate a volatile economy resulting from the pandemic and move toward a recovery. Below we provide some suggestions for maintaining your financial wellness today and beyond.
Assess Your Overall Financial Picture and Adjust as Needed
Your investment portfolio may look different than it did this time last year, and while some sectors of the market have done very well, others are still struggling to recover. You should know how your investments and retirement accounts are performing. No matter what is happening in the markets, it is always a good idea to meet annually with your financial advisor for a holistic overview of your financial roadmap. Be sure to make your advisor aware of any significant changes to your financial situation or changes in your tolerance for risk. If you're feeling uncomfortable with any aspects of your investment portfolio, consider revisiting your asset allocation strategy.
Your advisor should also help you identify personal strengths and weaknesses around spending and saving after a bumpy economic year. If there are areas you may have overlooked amid the COVID-19 crisis that need improvement, commit to changing them and make adjustments to get back on course with your roadmap.
File Your Taxes Early and Maximize Your Investment Account Contributions
The IRS has extended the federal tax deadline to May 17, 2021, and most, but not all, states have followed suit, which also means that investors have an additional month to maximize 2020 contributions to traditional, Roth and SEP IRA accounts. If you have not already done so, now is the time to contribute. In spite of the extension, investors are advised to consult with their tax preparers and financial advisors and to file their tax returns as early as possible.
It's also important to note that filing may get complicated this year as investors account for any CARES Act provisions. For example, if you are over 70 ½ and waived your required minimum distribution (RMD) in 2020, you will not be able to do so again in 2021. If you took a hardship distribution from your 401(k) account, you have three years to spread out payments back into the account before income taxes are owed. If possible, it's wise to start paying back funds at the earliest opportunity.
Build Up Your Rainy Day Fund
The past year has shed light on the importance of having enough savings to carry you through at least 3-6 months in the event of an emergency. This means cash or readily liquid assets, not investments and retirement accounts. When starting an emergency fund, consider your age, income, and current investments, and discuss strategies to build liquidity with your financial advisor.
Review Your Estate Plan
While certain financial topics are often avoided, the pandemic has certainly provided an easier segue into family discussions around wealth, estate planning, charitable giving and long-term-health care planning.
Regardless of your tax bracket, it's important to have an up-to-date will and an estate plan in place, and to review these annually for any needed changes. Many investors have undergone major life changes over the past year, like the loss of a spouse or partner, job loss, marriage, or divorce, and it is important to consult with experts, such as your financial advisor and attorney, who can guide you through necessary adjustments. Also make sure you review beneficiary designations on your retirement accounts and life insurance plans and go over any health care directives you have in place should you become incapacitated.
Teach Your Children About Money
Take time early on to start showing your children what it means to be fiscally responsible. Teach them about concepts like price, cost, and value, and encourage them to open a bank account. Programs like JumpStart can introduce kids of all ages to basic concepts like income and spending. By teaching them early about fixed and variable expenses and prioritizing certain big-ticket items, parents can refresh their own ideas around the larger financial picture and what's truly important.
Talk to your high schoolers about building credit before they head off to college. Discuss the finer points of credit management and encourage them to learn good spending habits. Refer them to sources like credit.org to help them understand interest rates, credit limits, budgeting, and what happens when they miss a credit card payment.
Stay Invested and Remain Vigilant
While the markets have made a strong recovery to date, no one can predict the future. Continue with contributions to retirement accounts and make sure you're diversifying your investible assets across a range of opportunities. Consult with your financial advisor and stay up to date with market insights to assist you in making informed decisions.
Laying the foundation for a secure financial future takes work, but if there was ever a time to commit to setting and meeting financial goals while also preparing for the unexpected, it is now. Contact a B. Riley Wealth financial advisor for more information.
*B. Riley Wealth Management is not engaged in rendering legal, accounting or tax-preparation services. Specific questions as they relate to your situation should be directed to your legal and tax advisors.