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.
*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.