As we approach the end of an extremely weird and difficult year, no doubt what is on lots of people’s minds: What is to come in the months and year immediately ahead?
From an economic and financial standpoint, a great deal depends on several factors very well summed up in a recent The Wall Street Journal article.*
In order to gauge how early 2021 will look, we need to understand:
- How bad this latest surge in coronavirus cases might get?
- What measures people and state and local governments take and the resulting effects on spending?
- How much relief will come from the federal government?
- How much better things will look toward the end of 1Q 2021?
That is a long list of unknowns. So long, in fact, that not a whole lot of experienced economists want to take a stab at predictions yet. Although one prediction seen and heard often lately is that “the first quarter of 2021 could start off really bad and then get really good”.
What do we do with this information (or lack thereof)? In my experience in managing people’s financial lives and being a long-term investor myself it becomes imperative to stick with the things we can control – even if that means not much.
- In the case of uncertain job status – which has crept into every industry from transportation to restaurants and hospitality to financial services – then the focus becomes on preserving existing savings and managing short-term spending.
- In the case of fluctuating compensation due to changes in demand for a person or company’s product or service, then it comes down to saving as much upfront as possible while evaluating fixed and discretionary spending.
- In the case of a secure income and job situation, then there is an opportunity to reduce spending and debt wherever possible without a great deal of pressure. These short-term spending reductions can lead to increased savings – which can eventually be spent when the overall economy picks up and greater certainty resumes. The economic risks and variables mentioned in the list above are not going away soon.
Mostly, clients and friends tell me they are a bit exhausted and ready for a holiday break (as am I). It is a lot easier to consider adjustments to spending and savings strategies during a period of less activity – like holidays on a series of Fridays – than amidst the busiest of times. The immediate future is still rather uncertain, so try to focus on a handful of controllable actions and things. And please do not hesitate to ask me for advice.
Happy Hanukkah (just ended), Merry Christmas and Happy Holidays!
*Justin Lahart, WSJ, “For America’s Economy This Winter, a Covid Freeze and Then a Vaccine Thaw”, Dec. 18th.
Thank you for reading and stay safe.