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1. If you’re still working, raise your retirement savings ...
Of all tasks related to financial security, one of the most important is to save more for that time when earnings stop coming in. Using tax-favored retirement accounts is a good choice, and you have more time than you might think to bump up your 2021 contributions: Until April 15, 2022, you can deposit as much as $7,000 in earnings into a traditional or Roth IRA. (That’s the standard $6,000 limit, plus a $1,000 catch-up contribution if you’re 50-plus.) It’s easy to open an account online with a brokerage such as Charles Schwab, Fidelity, T. Rowe Price or Vanguard. Once that’s done, you can think about contributing another $7,000 for 2022.
2. ... and go automatic.
If you have a 401(k) account available at work and you’re not currently contributing, tell your HR department you’d like to start (or resume) having contributions deducted from each paycheck. Already in a plan? Increase your annual deduction another percentage point or two. For further savings, go through your bank or brokerage to make an automatic monthly contribution to an IRA, an emergency saving fund or another account you’ve created for a onetime need, whether it’s a new furnace or a dream vacation. “Automating your savings is the best way to reach your financial goal,” says Shay Cook, CEO of Crusaders for Change, a financial counseling firm in Odenton, Maryland. “Not having to think about it is key,” she says. “You are more likely to hit your goal than if you have to manually transfer money to the designated account each month.”
Make sure your monthly spending is less than your monthly income.
3. Reassess your budget.
Another golden rule of financial security: Make sure your monthly spending is less than your monthly income. Your needs may be far different than they were before the pandemic. So take an hour or two to review your outlays: Make a list of all your regular bills, such as your mortgage or rent, insurance, cellphone and utilities. Look at a few recent months of credit card and bank statements to see what you’re spending on food, health care and the other expenses in life that are hard to keep track of. “It’s easy for things we don’t value to get added to our budget over time without us realizing it,” says Laura Cuber, a financial adviser in Schaumburg, Illinois. Look for places to cut: small items that add up, recurring charges for services you no longer need, or big changes that could have a major impact, such as moving to a less expensive area.
4. Make a home movie.
Just in case we face yet another year of natural disasters, inventory your possessions and review your homeowner’s or renter’s insurance. Use your smartphone to take a video of everything in your home, says Eileen Freiburger, a financial planner in Sebastopol, California. Narrate while taping to give context and to highlight things of value. Open your drawers and closets: “Make sure it’s all there so later you aren’t trying to guess,” she says. Save the file online in case you have to make a claim. Separately, verify that you have enough coverage to rebuild your home if it’s destroyed — a problem after the California wildfires, says Kathryn Peyton, a financial adviser in Sonoma County, California. For a good estimate, she recommends asking a builder about local construction costs per square foot for your type of home.