Date: December 29, 2020

7 Financial Lessons We Learned from 2020 – And What it Means for 2021

2020 was a year of challenge and growth. Between the pandemic and economic recession, we all faced a lot of stress and uncertainty. As we reflect back on 2020, it’s important to remember the good moments we had (for me, this year shined a light on what’s most important in life – our health and our family), and to make the most of the hard times.

How’s that?

Below are 7 financial lessons we learned in 2020, and the changes we can make because of them in 2021.

Lesson #1: Creating an Emergency Fund is Crucial

Regardless of how much money you make, everyone should have an emergency fund to fall back on in hard times. An emergency fund is a critical part of being financially prepared.

What if you’re furloughed? What if your spouse passes away unexpectedly? What if you’re forced to leave your job so you can stay home with your kids while schools are closed?

Thousands of people faced challenges just like these this year. An emergency fund helps ensure these unexpected events don’t derail your financial security.

At Watts Gwilliam, we recommend clients save at least three to six months of barebones expenses in an emergency fund. You may want a larger fund if your income is more volatile or you have more responsibilities at home, such as a mortgage, kids in private school, etc.

Not having an emergency fund is one of the common oversights in financial planning. Read our latest blog post: 6 Common Financial Planning Mistakes We See Athletes Make. If you don’t have an emergency fund, make creating one your top goal for 2021!


How did your finances fare in 2020? Contact the financial advisors at Watts Gwilliam and take the first step toward financial security in 2021.


Lesson #2: Retirement Could Come Earlier Than Expected

It’s estimated that 43 percent of workers retire earlier than anticipated – but this number could be a lot higher due to the Coronavirus pandemic.

Even without studies like these, our own personal experiences in 2020 make it clear that it’s time to get serious about retirement planning. It could come sooner than you think.

If you haven’t already, meet with a fiduciary financial advisor to figure out:

  • How much money you need to fund your ideal retirement
  • How to optimize Social Security benefits
  • How you can hedge against unexpected risks you may face in retirement
  • How to minimize taxes now and in retirement

There are many reasons why retirement may come early. Read our recent blog post: What You Need to Know About Rule 72t and Early Retirement.

Lesson #3: Establish a Budget

A Kiplinger study found that high-net-worth individuals tend to underestimate their spending by 25 percent on average – some even underestimate it as much as 50 percent!

At Watts Gwilliam, we have a lot of high-net-worth clients. We understand that it can difficult to know where your money is going when your financial picture is so complex, but this statistic is alarming.

A budget allows you to track your income and expenses, so you can make sure you’re on track to meet all your financial goals for the year. While a comfortable income can create a sense of security, it can also create the perception that a budget is not necessary. In reality, a budget can be even more important in these circumstances.

If you’re not sure where to start, contact the team at Watts Gwilliam and get the conversation started.

Lesson #4: Plan for Taxes

Tax planning is another essential part of a financial plan, especially for high-net-worth families, because again, the more money you have, the more money you can leave on the table. Without a proper tax strategy in place, you can miss out on important deductions and end up paying way more than necessary.

Four common areas to review for tax purposes are:

  • Your investments. You can pay short-term capital gains taxes on investments held for less than a year, and long-term capital gains taxes on investments held for more than a year.
  • Charitable donations. Under the Coronavirus Aid Relief, and Economic Security (CARES) Act, you can write off 100 percent of cash donations to qualifying charities, up to your adjusted gross income, if you itemize. Depending on your situation, a donor-advised fund or charitable lead annuity trust may also be a great way to reduce taxes on your donations.
  • Gifts and estates. The Tax Cuts and Jobs Act effectively doubled the tax exemptions for gifts and estates. For 2020, a single person can leave $11.58 million to their heirs without it being subject to taxes. A married couple can leave up to $23.16 million. You can also give anyone up to $15,000 in a single year without having to pay the gift tax.
  • Your retirement. One of the most effective ways to reduce your taxable income is to max out your retirement accounts. For employer-sponsored plans in 2020, you can contribute up to $19,500, or $26,000 if you’re at least 50 years old. The contribution limit for Traditional and Roth IRAs is $6,000, or $7,000 if you’re at least 50 years old.

Lesson #5: Address Debt

For many high-income earners, debt still plays a major role in their financial struggle (whether it’s student loan debt, credit card debt, or even just your mortgage or car payment).

Debt reduces your cash flow, so paying it off will decrease the amount of money you need to live off of in retirement.

There are many ways to address debt. Some focus on paying off debt with the highest interest rate first, then working their way down to debt with the lowest interest rate. Others focus on the smaller amounts first, eliminating specific amounts all together, before focusing on the next.

Lesson #6: Review Your Financial Plan

A lot has changed for people in 2020, so there’s a good chance your financial plan needs to change too. If you haven’t done this already, here are 3 actions to take in 2021:

  • Review your risk tolerance (2020 may have proven you’re not as much of a risk-taker as you thought)
  • Update your beneficiaries (this is especially important if a loved one passed away, you went through a divorce, you had a child or you remarried)
  • Discuss any life-changing events that may have altered your goals with your financial advisor

Lesson #7: It’s Important to Get Investment Help from a Financial Advisor 

Money can make us do emotional things. We’ve seen this firsthand in 2020, as we’ve come head-to-head with one of the most volatile markets in U.S. history.

As we head into the new year, don’t underestimate the power of working with a professional. DIY investing can be stressful – and mistakes can be costly if you’re not careful.

A Vanguard study shows that investors who work with a financial advisor earn 3 percent higher net returns than those who don’t. That may not sound like much, but if your investment portfolio is $1 million, this equates to $30,000 more a year over your lifetime.

Start 2021 Off on the Right Foot

As we say goodbye to 2020, what financial lessons do you want to take with you into 2021? Maybe you want to have your investments professionally managed or start taking retirement planning more seriously. Whatever it is, Watts Gwilliam and Company is here to help guide you every step of the way. Contact us to get started. A simple conversation can go a long way.

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David Watts

Dave is one of the firm’s founders. He helps business owners, professional athletes, and other high-net worth clients develop and implement financial plans and strategies. He also specializes in helping those with single-stock positions to diversify and manage their financial lives. Other areas of specialty are wealth transfer plans for concentrated stockholders and business owners; tax minimization strategies for those with employee stock options; cash flow management; and risk management planning.