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Monetary classes from the pandemic

2020 has shaped us all financially in one way or another. Whether it is being reminded of the importance of living within our means or saving for a rainy day, these positive financial habits and lessons are timeless and those to include in the new year.

While each is on a unique financial journey, we can still learn from each other. As we close this year it is important to reflect on some of these positive financial habits and lessons and the ones we need to incorporate into 2021. Here are some of the key financial lessons:

Live within your means

It has been said for years, centuries even, that one should live within one's means. I think a lot of people were reminded of this financial principle this year. Living within your means is another way of saying that you are not spending more than you deserve. I would go a step further and say, set up your financial budget so that you pay yourself first. Then only spend what is left on any fun or variable items.

Setting up your budget in the Mint app or updating your budget in Mint to reflect changes in your income or expenses is a great activity to do before the end of the year. Follow the 50/20/30 Rule of thumb and ask yourself the following questions:

Do you spend more than you earn?
Are there any fixed bills that you can cut down so you can save more for your financial goals?
Can you reduce your variable expenses and save that money instead?

The idea is to find a credit that you can use to pay your fixed bills, save automatically every month, and then only spend what is left. If you don't have the money, debt can't buy you anything. This is a great way to get back in touch with reality and appreciate your money more.

Have a pillow of money

Having a cushion of cash gives you peace of mind knowing that if something unexpected happens, which of course always happens in life, you will have money that is easy to liquidate to pay, rather than pay it with debt or to take long term investments. Having a decent cushion of money this year gave some people a big sigh of relief when they lost their jobs or perhaps had lower income for a few months. With a pillow of money or a rainy day fund, they could still cover their bills with their savings.

Many people make it their goal to build up, replenish or maintain their money cushion in 2021. Typically, you want a cash cushion of around 3 to 6 months from your core expenses. Your pillow of money is usually kept in a high-yield savings account that you can access immediately when you need it. However, you want to think of it almost invisible so that it really is suitable for major emergencies or opportunities that arise.

Asset allocation

It is always important to have the right asset allocation and to understand your risk tolerance and the timeframe of your investments. With so much uncertainty and volatility in stock markets this year, more and more people are paying attention to their portfolio allocation and learning what it really means when it comes to risk and return. It is always important to learn more about what investments you are actually holding in your 401 (k) or IRA. I think this year's lesson reminded everyone that it's your money, and it's up to you to know.

Even with an investment manager to help you, you still need to understand how your portfolio is allocated and what that means in terms of risk and what to expect in terms of portfolio volatility (ups and downs) compared to the overall stock market. Many people watch the news and hear that the stock market is going up or down, but they don't realize that your portfolio may not be doing that. So make yourself clear Make sure your portfolio matches your long-term goal of retirement and risk tolerance, and don't use your long-term money to make irrational short-term decisions based on stock market volatility or the news and media.

Proper insurance coverage

We have all been reminded of the importance of health this year. Our own health and the health of our loved ones should be a top priority. This is also an extremely important part of financial success over time. It is said that insurance is the glue that can hold everything in your financial life together when something disastrous happens. Insurance such as health, auto, home, disability, life, long term care, business, etc. are really important, but having the right insurance policy and coverage for everyone is the most important part.

Take the time to review all of the coverage you have and make sure it is up to date and still correct taking into account your circumstances and desires. Sometimes you may have had life insurance for years but you don't know that there is now a better product on the market that offers more insurance coverage or better terms. With any insurance, it is advisable never to cancel a policy before a full review and a new policy to replace it. The last thing you want is to be uninsured. Make sure you also have an adequate estate plan in place, whether it's a trust or a will that makes your desires very clear. This way you can communicate this to your trustee / will, beneficiary, family members, etc. so that it is clear in all areas too.

Financial lessons will always be there. Year after year, life presents us with challenges and successes to remind us of what is most important. Take your time, think, and create a game plan for 2021 that takes into account everything you've learned so far. This will help you set the tone for a rich and prosperous new fiscal year.

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