7 ways to strengthen your financial foundation as the economy recovers

"Perhaps the number one takeaway from 2020 is that the world can change in an instant," said Shelly Eweka, CFP^®, ChFC^®, a Financial Planning Strategy Director at TIAA.

As the economy reopens following more than a year of restrictions, Eweka believes it's important to reflect on what you experienced last year and the impact those experiences had on your life. What has changed for your family, career or lifestyle?

"Re-evaluating your goals and priorities is an important step for making sure you can continue to protect what's most important to you," she said. "That includes reviewing your investment strategy, as well as the safeguards in place to protect your income, loved ones and property."

Since we can never know with certainty what lies ahead for the markets, economy or our own lives, these considerations are all part of the planning process, which is designed to help you navigate change in the months and years ahead. A key benefit of the planning process is the ability to stress test your strategy for extreme circumstances and events, like we saw in February and March 2020, when the S&P 500 fell 34%.

"These events are built into the more than 500 trials we run when we create your plan," Eweka said. "That allows us to identify gaps or vulnerabilities in your planning and address them before events like this occur."

According to TIAA Chief Planning Strategist Dan Keady, CFP^®, your plan not only provides a valuable roadmap for the future but a structure you can lean on to buffer, secure and optimize your assets as your personal circumstances and market conditions change over time.

Access to cash reserves is important in any economic environment, but especially during times of increased uncertainty. For example, in 2020 emergency savings created a "buffer" for those taking income from their portfolios by allowing them to dip into cash reserves instead of cementing losses by drawing down on their investment portfolios. Many people also took advantage of additional savings, resulting from a combination of reduced spending while saying home and government-issued economic impact payments, to pay down outstanding credit card debt. That put many people in a better position to weather uncertainty, such as job losses and furloughs, or a temporary drop in the value of their investment portfolios.

"Remember, low savings rates plus high credit card debt lead to financial fragility," Keady said. "So maintaining adequate cash flow is critical in any environment but especially during difficult times."

"We frequently talk about risk management in the context of the capital markets, but managing risk encompasses far more than your investment strategy," said TIAA Wealth Planning Strategies Director Colleen Carcone, CFP^®.

Carcone cites the pandemic as an example of how quickly events outside of our control can impact our health, lifestyle and financial goals in ways we could not have imagined before. Last year's uncertainty also led a growing number of people to reassess their goals, values and priorities and engage with their estate planning attorneys and wealth advisors to review their legacy plans and goals.

"The pandemic brought discussions about who will act on your behalf if you're incapacitated to the forefront of family discussions," Carcone said. "Who has the legal authority to act on your behalf? Who is authorized to receive updates on your condition if you're hospitalized? What are your wishes when it comes to palliative or end of life care?" Carcone acknowledges that during times of uncertainty, there may be some things that are out of your control, but your estate plan isn't one of them.

Having the right documents in place, beginning with a living will, durable powers of attorney and healthcare directives, provides legal authority to those you trust to act on your behalf, ensuring your wishes are met during your lifetime and your legacy is honored after you are gone.

Planning is the foundation of financial well-being and communicating regularly with your financial advisor is essential.

That's because your advisor has the advantage of not being emotionally connected to your money, which can be critical during periods of increased uncertainty and market instability. Keady encourages people to "use your advisor as a sounding board," especially if you're unsure whether you're approaching investment decision making from an emotional or rational perspective.

"Your advisor can help ground you since he or she is not emotionally attached to your money," Keady said. "That helps to ensure that you make informed and confident decisions based on your planning and your goals, rather than day-to-day market swings."