Spending advice for the second half of 2021

As we enter a post-COVID-19 time, you likely have your mind set on connecting with friends and family and having fun. Although I have worn the moniker of Debbie Downer at times, I promise to incorporate your need to unleash the pent-up spending that has built up over the past 16 months. Like the intermission of a show, you don’t want to overdo it or else you might miss the second act. Use these six tips to strike a balance between deserving some fun and being responsible.

1. Spend mindfully: The pandemic caused the savings rate to spike, leaving consumers with more than $2 trillion of excess savings. Before you party, cover your basics: Establish an emergency reserve fund of 6-12 months of living expenses, pay down consumer debt and maximize your retirement plan contributions. With those tasks ticked off your list, allocate a portion of your savings to your postCOVID-19 splurge.

2. Prepare to repay student loans or any other debt:

Throughout the pandemic, many lenders provided borrowers with flexibility and, in some cases, forbearance for loans. Many of those programs are concluding at the end of September, which means you need a plan of action. Start by creating a list of outstanding debt and put the highest interest rate debt at the top, followed by other loans, in descending order. Attack the highest interest loan first and once you whittle it down, shift the money toward the next highest one. To manage the process, establish automatic payments, even for a small amount, to help avoid or minimize penalties and fees.

3. Refinance your mortgage: If you missed the refinancing boat because your income was too low or you were laid off, you may want to try again. The government has introduced new programs with looser requirements and lower fees that target low-income borrowers. The new products could allow some 2 million homeowners to save an average of $100-$250 each month.

4. Address the elephant in the room: A year ago, I noted that the pandemic “made conversations about illness and death a necessity.” If you have yet to overcome your fear and anxiety associated with this tough task, please use this time to create (or update) a will; a health care proxy, which allows you to appoint someone to make health care decisions on your behalf if you lose the ability to do so; and a durable power of attorney, which allows you to appoint someone to act as your financial agent in a variety of circumstances.

5. Review your insurance coverage: Homeowners, don’t wait for a natural disaster to occur before you review your policy. The three biggest mistakes are under-insuring; shopping for price only and not comparing apples to apples; and not reading policy details. For auto, if you have an old car worth under $5,000, eliminate collision and comprehensive coverage and increase deductibles. As for life insurance, your needs often decline as you age, so you may be able to get rid of an old policy or consider replacing an expensive permanent life policy with a cheaper term one.

6. Recalibrate your investments: Did you start using an app to learn about investing? Did you make a pile of money in GameStop or Bitcoin? Has your company stock soared in value? If so, don’t squander those profits because they can evaporate before your eyes. Midyear is the perfect time for long-term investors to rebalance accounts so that allocations remain in check.

If you want to maintain a “fun money” account, be sure to keep the amount to 5% to 10% of your total invested assets.