I have spent weeks explaining why you should not make any financial moves based on a Biden presidency or which party will control the Senate come January. Campaign promises are just suggestions of what they’d like to get done. Actual change takes months of drafting, reviewing, sub-committees, negotiations, revising, etc. Trust that your plan is flexible and can accommodate change as it comes.

However, you still can’t coast through the end of the year, as badly as you want to. There are financial moves that you should consider before you celebrate the end of 2020.

First and foremost, assess your emergency fund. If 2020 taught us anything, it is that work isn’t guaranteed. When the country closed in March, millions of people found themselves out of work. We quickly found out how many people don’t have any funds set aside for such an event.

Having an emergency fund is the cornerstone of your financial plan. Without emergency assets set aside, investors will have to tap their investments or retirement savings to cover an unexpected loss of income. Since the coronavirus emergency was widespread, investments were down nearly 34%—definitely not the time to sell stocks for cash. Had the government not created exemptions with the CARES Act, retirement withdrawals would have been met with the standard penalties and taxes.

If you tapped your emergency fund this past year or did not have one at all, you should take aggressive moves to build it back up. It may take several months to recoup an amount equal to six months’ worth of expenses, but the process should start now. You can make savings automatic by having your employer deposit a percentage of your paycheck into a separate account, or you can reduce your discretionary spending or direct investment earnings into your emergency account. I know you’re thinking, “Why would I take money that could be invested in the stock market earning 10% and put it in savings earning 0.01%?” Safety. The emergency fund needs to be there in its entirety when you need it — not down 34%.

The second year-end step should be to review your investment portfolio. How well did you fare the bear market in the second quarter? Are you taking on more risk than you should? Did 2020 make you re-evaluate some of your short- and long-term goals? Are you only saving to your employer-sponsored retirement plan? Consider adding to a Roth IRA as well for tax-free income in retirement. Start investing in a 529 Plan for your children’s education. If you do a little bit of everything, you will have more options on how your money can work for you.

At the risk of sounding like a broken record, investors should rebalance their investments before year-end. The stock market has experienced considerable lop-sided growth — both in industry sectors and investment style — since the bottom in March. Rebalancing will help you reduce your risk should we have another pullback in the economy. Rebalancing can also help you make changes to your portfolio should your objectives have changed or can help you generate cash to supplement your emergency fund.

Your final step is to set some financial goals for the new year. Maybe it is managing your debt or increasing your retirement plan contributions. All goals start with baby steps and aim to put you in a better financial position by the end of the year.

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William G. Lako, Jr., CFP®, is an Executive in Residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial and a co-host on Atlanta’s longest running, most respected financial talk radio show “Money Talks” airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a CERTIFIED FINANCIAL PLANNER™ professional.


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