Time is the scarcest resource and something we should not take for granted. How do you plan to make the most of this year? I hope some of your goals include improving your financial health. Here are some of the best financial moves you can make in 2021. Doing so can boost your chances of continued wealth creation. Don’t take automatically growing your wealth each year for granted!
The Best Financial Moves To Make In 2021
1) Review your asset allocation. Setting and forgetting it is not a good strategy if you want to stay properly diversified. For example, you might deploy a 50% equities, 50% bonds asset allocation. But if your equities climb 35% while your bonds decline 10%, and you want a 50/50 balance, you’re out of alignment because your portfolio is now 60% equities and 40% bonds.
Investors should rebalance at least twice a year, no matter how small the rebalance is. Taking the time to rebalance helps focus your attention on your investments so they don’t grow too far out of whack.
2) Review your income and spending. Another one of the best financial moves you can make in 2021 is to carefully review how much money you have coming in and out. You’ll be surprised by how much you’ve spent compared to how much you think you’ve spent. Chances are high that you’re spending more than you realize.
Using Personal Capital’s cash flow analyzer, you can visibly see what’s going in and out each week and month. I check Personal Capital each week to make sure my budget is in check. The app is free and easy to use.
3) Boost your savings another 10%. If the amount of money you are saving each month doesn’t hurt, you are NOT saving enough! 2018 is going to be a much more volatile year in the stock market and real estate market.
Therefore, it’s important to boost savings to minimize volatility and have a large enough cash buffer to take advantage of market sell-offs. Cash is king during times of uncertainty! If you aren’t already, earn a higher bank savings interest rate.
4) Update your resume. Another of the best financial moves for 2021 is to get your resume updated. The US unemployment rate is now only 4.1%, essentially full employment. Now is the time to jump ship for that job for more money and a better title.
Update your resume and make sure it’s the best looking document on your computer. You’ll be surprised by how much you’ve accomplished over the course of a year that you can add to your resume. Make different versions of your resume for different types of industries or jobs you are eying.
5) Keep you and your family safe. It’s important to make sure you’ve got the appropriate health care insurance for you and your loved ones. Medical costs consistently rank as one of the top reasons for bankruptcies in the United States. Some random illness could wipe you out if you don’t have the appropriate health care.
In addition to having the appropriate health insurance, please make sure your housing insurance, car insurance, and personal property insurance coverage are correct. Finally, if you have lots of assets that go beyond what your housing and car insurance can cover, definitely get an umbrella policy. The linked article explains what an umbrella policy is and how much it may cost.
6) Write or review your will. The sixth best financial move for 2021 is to make sure your affairs are in order. If you don’t have a will yet, write one. The wealthier you are, the more important it is to have a will to ensure your money goes to where you intend. Don’t let costly probate decide the fate of your fortune.
7) Plan your taxes. Your taxes are likely your largest ongoing liability. Definitely don’t let the government tax you more than you save each year! Stay aware of updates in tax policy including deductions and credits on a regular basis because things are always changing.
I sold my SF rental house in 2017 in anticipation of negative tax policies affecting the expensive real estate market and re-invested $500,000 of the proceeds in real estate crowdfunding through Fundrise to take advantage of higher yields and cheaper valuations in the heartland of America.
Below are the 2021 Federal marginal income tax rates.
8) Run your investment portfolios through an investment analyzer. At least once a year I run my investment portfolios through Personal Capital’s Retirement Fee Analyzer. Just link your investment accounts and click on the Investing tab on the top right and then click Retirement Fee Analyzer.
I’ve optimized my two portfolios so that my annual fee is estimated at only 0.18% compared to the benchmark of 0.5% due to my selection of ETFs, Index Funds, and specific stocks. The other cool feature is the Investment Checkup feature that shows your current vs. target allocation.
The other benefit of running your portfolio through Personal Capital’s Investment Checkup tool is to see what your overall asset allocation is. Your asset allocation should be congruent with your risk tolerance and financial objectives.
Further, if you have multiple investment accounts like a 401(k), SEP-IRA, Rollover IRA, and after-tax investment account, you want to see a top down overview. See example below.
Ensure A Better Financial Future
One thing the pandemic has taught us it to expect the unexpected. It’s vital that everybody prepares for uncertain times. I certainly don’t see the stock market going up another 20% or the real estate market accelerating to new highs.
Don’t confuse brains with a bull market!