Financial planning in the pandemic

Saving money for the future is atop many New Year's resolution lists, even above going to the gym, losing weight and getting healthier.

A survey conducted by OnePoll on behalf of Affirm, found more than half of respondents are planning to budget better in 2021 and another 49% are hoping to pay down debt.

Financial stability can be a source of stress, fear and anxiety; and the financial strains of COVID further complicate matters.

"COVID-19 has brought about a period of unprecedented volatility and left behind economic uncertainties that may take years to fix," said Tyler Cuba, CEO and senior wealth adviser with Cuba Financial Group in Cape Girardeau.

"However, there is a silver lining that we have seen over the past nine months — an increasing number of new clients taking the initial steps to plan for what comes next," he said. "The pandemic has really stressed to people that having a financial plan is imperative to their financial success."

He added, as a whole, people are starting to face more of the economic impacts of the virus versus just the virus itself, as 2020 comes to a close.

COVID's impact

As financial hardships because of the pandemic hit many homes, dipping into retirement or savings accounts or cashing out of investments became a reality for some. Brock Alspaugh, financial planner with Innovate Financial Solutions in Cape Girardeau, noted, "You have to pay that back according to the IRS withdrawal rules." In order to recoup those withdrawals, he recommended working as hard as possible with a budget to make sacrifices to ensure the future is protected.

But maybe there's a silver lining or two. Because of restrictions in travel and fewer choices when it comes to dining out and entertainment, less discretionary money was spent on those items, potentially freeing that up for savings.

"People have watched their money closer and realized how much money they were spending and maybe they don't need to continue to spend that kind of money," Alspaugh said. He encouraged thinking about restricting spending longer term in order to put money into savings.

Cuba said that, because of COVID, his clients realized "there are things that can happen going forward as interconnected as this world is, that we just can't plan for from day to day." He added, "You have to have a plan that takes into account the unexpected, and is dynamic enough to pivot quickly."

Planning

However, according to Gallup, only 30% of Americans have a long-term financial plan involving thinking about savings and investments for the future.

In addition, 75% of Americans manage their own finances, with no help from a professional or online service, according to a new CNBC and Acorns Invest In You Savings Survey, and only 17% said they use a financial adviser.

Finding the right fit of a financial planner doesn't have to feel like a daunting task. Cuba offered the following advice: "There are different styles of, and approaches to, financial planning — it's much more than an investment or insurance policy. It's really what you find most comfortable, but you should ultimately look for a professional who is independent, objective, and has experience across all market cycles and who acts as a fiduciary, putting your interests above all else."

At the foundation of every financial plan, Cuba said people must have a budget.

"You have to have a budget," he said. "If you're spending more than what you're bringing in, there's very little opportunity you can start saving for retirement or accomplishing the many things that are financially important to you."

If beginning financial planning is on your New Year's resolution list, outlining income and expenses in order to create a budget is where to start.

"Helping people get a good handle on their budget helps create a blueprint for how to begin devoting time, attention, and resources to some of those things that you're interested in accomplishing," Cuba said.

Alspaugh recommended to "Just start saving money. And for a younger person, specifically for retirement, you can't beat the benefits of the Roth IRA. Put money in every single month like clockwork; you won't miss it."

He also strongly recommended everyone checks with their employers to see whether there's a Roth option inside the company 401(k) program, and take advantage of it.

For those who have a plan and had cash to take advantage of the downturn in the market, it proved beneficial.

"In hindsight, the last nine months provided a great time to invest," Cuba said. "For long-term investors, however, history provides great perspective as to how markets perform over time despite periods of short-term volatility. We're going to continue to see periods of volatility like this going forward, but this is normal and should be considered an opportunity to take advantage of the challenges presented during those times."

Looking to 2021

Both Cuba and Alspaugh recommend meeting with a financial planner yearly to be sure goals and objectives of portfolios are in line with them.

2021 brings a new presidency, leaving some investors feeling uncertain. However, Alspaugh sees a unique opportunity in the financial sector.

"With a new administration coming in, we don't know exactly what the tax landscape is going to look like," he said. "However, we do know that the Tax Cuts and Jobs Act of 2017 means we are in lower tax rates at least through 2025. If you look at the tax rates historically, we are at some of the lowest tax rates we've ever seen in this country. So, let's take advantage of that and do some tax planning now to help ourselves in the future."

For example, he offered that with a traditional IRA, people can convert some or all of their pre-tax retirement accounts to a Roth IRA, paying tax now on the converted amounts. When the Roth money is used in retirement, it typically comes out tax free.

Cuba recommends considering reallocating investment accounts at the start of 2021, taking a look at how money is invested and how things performed over the course of the last 12 months.

"There are many areas of the economy that may do much better than others as a COVID vaccine gets out to more people, the economy begins to fully open up and we get back to a greater sense of normalcy than what we experienced in 2020," he said.

Alspaugh isn't concerned about investing in the future.

"Now is a great time to 'dollar cost average' into the market, which means buying in slowly over time," he said. "For example, if you inherited a lump sum of money, it might be a good idea to invest over several months versus dumping it all in the stock market at once. Investing over time, keeping your money invested when fear strikes, invest according to your risk tolerance and finally investing more when the market corrects are the keys to long-term success."

In the end, Alspaugh said to make sure to not be too aggressive, make sure to not be too conservative and you'll be able to weather the storms that come our way.