Looking back on 2020 is useful ONLY if we use what we have as we look forward.
What mistakes were made and can be avoided? What opportunities did we find, or did we miss? What assumptions about spending, saving, and investing were challenged and proved to be true, or false? Asking and answering these questions can create possibilities and a limitless future of financial opportunities for you.
As we explore the methodology for financial planning for the year ahead, we’d like to share findings from a September 2020 study by Northwestern Mutual.
The findings reveal that over one-third (38%) of Americans have had to take steps to cover their living expenses since the 2020 COVID-19 pandemic:
- 19% have dipped into personal savings or emergency funds
- 13% have borrowed money from family or friends
- 9% have dipped into retirement savings
The year 2020 was one of those years that caused many of us to dip into our emergency funds. And that’s what emergency funds are for; for the year of being unable to work and of business grinding to a halt, all while you still need to pay your bills. But as things improve, your priority should be to rebuild that emergency fund; pay back the friends and family, and restore your retirement savings.
This Is The Year To Be Disciplined
If you have not been disciplined about your spending then now is a good time to start. Look at your expenses to “trim the fat”. But it is hard to know where to start; how do you trim fat without cutting it into meat and bone?
At Muhlenkamp, we think in terms of necessities, conveniences, and luxuries. Food is a necessity, but a five-dollar latte’ every day is a luxury. Shelter is a necessity; a McMansion is a luxury. You get the idea. When you look at trimming the fat, start with the luxuries and conveniences and you may find the necessities in this country are still pretty inexpensive. Just go through your expenses, and with NO JUDGEMENT, quickly mark it as a necessity, convenience, or luxury. That will bring clarity to your situation.
On a positive note, according to a recent survey by economists at Harvard Business School, when the pandemic is over, 1 in 6 workers are projected to continue working from home or co-working at least two days a week. This new opportunity will help families save on expenses for work, travel, and daycare. Discipline yourself to save the money you would have spent on gas and daycare instead of spending it on more conveniences or luxuries.
Rebuilding Takes Time
There are many similarities between training for a marathon and creating a legacy of financial freedom—both take desire, time, effort, and discipline.
Training for a marathon takes time to lose fat and build up muscle and endurance. Training for financial freedom takes time to pay off debt and grow assets. Replenishing your emergency fund or savings will come, it just may not come overnight. And just like any fitness agenda, once you have reached your goals, you must continue the behaviors that gave you results. To be physically and financially fit you have to continue to work out, eat good food, and save money. It’s simple, just not always easy.
According to a Newsweek study — 84% of Americans have made changes in their financials due to the pandemic.
What does all the data tell us? Times have changed. Prior to COVID-19, you may never have considered working from home for example. With the right discipline and mindset, 2021 can be a year of progress for reaching your financial goals.
It’s time to get busy with financial planning. Request a copy of the Muhlenkamp Marathon Financial Training Workbook. We suggest you review this workbook annually, to make sure you are staying on course. As things change in your life, you may want to revise some decisions that you made in earlier years.
The opinions expressed are those of Muhlenkamp and Company, Inc. and are not intended to forecast future events, a guarantee of future results, or investment advice.