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Thrivent Magazine Winter 2020

Financial management tactics to consider

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2020 saw month after month of curveballs. From a global pandemic and civil unrest to record stock market ups and downs, 2020 likely reshaped your daily life, including your finances and even how you approach money.

Now, as we look ahead, are there financial lessons you can take away from the COVID-19 crisis and a year of volatility? Is it time to set or re-evaluate your goals? Nate Collier, a Thrivent financial advisor in Lexington, Kentucky, says one silver lining to this experience is how universal it has been. A key takeaway from the pandemic, not to mention the year in general, is to expect the unexpected.

“I definitely think COVID-19 is a stiff reminder that anything can happen,” he says. “That gives us something to point to that everyone has touched. It’s truly trickled down to everyone.”

It’s time to take stock of what you’ve learned in 2020 and plan for the future. Here is what to consider as you go about forming or re-evaluating your financial strategy.

Assess your finances

You’ve worked hard to align your values and finances as you seek to achieve financial clarity. So, if you’ve lost a job or had your hours reduced, or you simply changed your spending habits this year, it’s important to revisit the major building block in your financial strategy—your budget.

You’re not alone. Nora Herrera, a Thrivent manager in San Antonio, Texas, who helps improve peoples’ budgeting and savings habits, says many have seen changes to either their income or their money behaviors because of COVID-19. For example, many people are spending less on travel, entertainment or going out to restaurants. This has helped them put more money toward their savings or other financial goals.

“We’re hearing the stories: ‘I’ve either been let go or furloughed,’” Herrera says. “People want to talk about their budgets, saying: ‘I really need to adjust. Can you help me through that?’”

Stephanie Shields, a Thrivent wealth advisor in Costa Mesa, California, says it’s essential to revisit what your true expenses are, especially if your lifestyle has changed or is in need of a change as a result of COVID-19.

“The biggest commonality is that people realize they can live on a lot less and they can live a lot simpler,” she says. “It’s understanding the concept: What can I get my life to look like?”

What if you’re starting from scratch? You really didn’t have a strategy for saving and spending. Collier takes an approach toward budgeting that reframes income as family revenue where bills, savings and other regular expenses are taken care of first. For example, if your budget covers your monthly mortgage payment right away, it won’t be looming over you the rest of the month or if something unexpected happens. The aim is to feel secure and have your finances in order.

“Pay yourself what you need to live as well as what you’ll need in the future,” he says.

Save for an emergency

After you evaluate your finances, you’ll know how much you’re able to save. COVID-19 has brought to the forefront the importance of an emergency fund that can cover a few months—or more—of unemployment, lost income or other gaps. The key, Collier says, is having savings on hand that is accessible, rather than in an untouchable account.

“Having cash on hand is important for when things change or when our way of life feels threatened,” he says. While it’s important to have money that’s locked away in long-term accounts that have the potential to grow, such as a 401(k) or IRA, Collier says having a financial cushion that’s available at a moment’s notice is important, too.

The starting point for savings is recurring transfers, or automatic, often monthly, deposits into a savings account. If you don’t have one set up yet, Herrera says, it’s important to start. It doesn’t matter if you’re putting away $25 per month or $250 per paycheck at first. “We always encourage baby steps,” she adds. “It’s changes, not necessarily drastic changes.”

Plan based on what you know

This year’s uncertainty may push some to revisit how aggressive or conservative they’ve been with their investments. Collier says that highlights the importance of having an investment strategy.

“With a small handful of folks, their initial reaction is to take money out of the market when things start to go down,” he says, adding that when times are good and investments are up, those gains can go away just as easily. “That message is going to be the one I hit home the most.”

These market fluctuations had a significant impact on retirement plans. Similar to budgeting, it may be time to revisit your retirement contributions if your needs have changed. You may need more cash on hand or you may want to boost your retirement savings.

Don’t kick yourself for not seeing curveballs coming. Shields says the key difference between COVID-19 and the last economic downturn is that the Great Recession of 2008 happened due to actions by financial institutions and loan borrowers instead of something as unforeseen as a global pandemic. Realizing that uncertainties can happen will ultimately make us more resilient to the next crisis.

Regardless of how much the ups and downs during the pandemic have affected you, Shields reiterates one takeaway: Focus on what you can control.

“That goes back to saving, spending and being reasonable,” she says. “I don’t care about all the bad decisions you may have made. It’s never too late to plan. Do the best with what you have and make good decisions going forward.”

By Eric Best

5 financial to-dos

Pencil in these tasks to put you on better financial footing.

  • Set or evaluate financial goals. Being intentional with your money will better guide your financial decisions throughout the year, including during life events or unexpected circumstances.

  • Automate savings. Set up a deposit that automatically goes into your savings or another account, either when you get paid or regularly sometime during the month. Any amount means progress toward a savings goal.

  • Revisit risk temperament. The pandemic and its economic impacts serve as a reminder that there are risks and uncertainties to any investment strategy.

  • Review insurance coverage. Go over existing insurance contracts or consider new ones, such as disability income insurance or life insurance, if you feel you or your family need more coverage.

  • Get legal documents in place. Don’t wait for a crisis to strike to get documents, such as power of attorney, a will or a trust, in place. Getting these basics taken care of may save you and your loved ones from scrambling in a stressful time. While Thrivent does not provide specific legal or tax advice, we can partner with you and your tax professional or attorney.

What to ask your financial advisor

The pandemic has caused many to revisit their financial strategies. Here are topics to discuss with your Thrivent financial advisor:

  • Do I need to change my budget? For many, this year has been a reset for their personal finances. Do you need to budget more for your home or food? Would you like to refinance your home or invest in your house? Have you pocketed planned expenses like travel that you can allocate elsewhere? Do you anticipate a large purchase? Are there opportunities to tweak your budget to better reflect what is truly important to you?

  • How can I be more tax efficient? Taxpayers are still getting used to the large tax code revisions in 2018, so there may be opportunities there. Converting a traditional IRA to a Roth IRA may be an option to consider, which would convert the account from taxable to tax-free. But it also may increase your taxes in the year of the conversion.1

  • How do I boost my savings or emergency fund? While retirement accounts and investments can be important pieces of a financial strategy, so is having cash available for an emergency or unplanned event. A financial advisor can help facilitate a conversation on savings between a spouse or family members.

  • How can I protect my family financially? Do you have a plan for covering health care expenses? Are you adequately covered by insurance? What strategies could potentially reduce your family’s tax burden in the event of a death?

Reach out to your Thrivent financial advisor with these questions and any others you may have.

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1State tax rules may differ from federal rules governing the tax treatment of Roth IRAs and there may be conflicts between federal and state tax treatment of IRA conversions. Consult your tax professional for your state's tax rules.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

If requested, a licensed insurance agent/producer may contact you and financial solutions, including insurance may be solicited.