A new year is a natural time for a fresh start and a new resolve, so there’s no better time to consider new ways to approach your finances in 2021—especially in light of the unusual circumstances that 2020 wrought on our finances and lives. Instead of setting out complicated resolutions that could be hard to stick with, consider adopting some of these more straightforward approaches that still can help you create a stronger, stabler financial position.
Save More Money
This resolution is the complement of the common resolve to spend less, and experts say it’s easier to follow. Rather than solely focusing on how you budget your money, try turning your attention to saving. You’ll be surprised at how much this shift can impact your finances.
First, decide now how much of your income you’d like to save every month based on your bills and salary. You may choose a percentage, such as 15 percent of your take-home income, or a dollar amount, such as $400 each month. Then, make sure you move the money into a savings or investment account or create a savings column in your budget to avoid absorbing it elsewhere, such as overspending on your credit card to compensate for the income now going to savings.
Track Your Spending
Whether your spending goals include buying a house, paying off a car loan, or spending less on groceries, keeping track of how much you spend is a vital first step to creating a budget to help you get there. When we estimate our spending, we often underestimate, which can lead to overspending and no progress toward larger financial goals.
You can figure out exactly how much you’re spending by examining old credit card and bank statements or using budget tracking software. Then, you’ll have a realistic idea of how much you spend and can make educated decisions about budgeting and saving—including chipping away at those big spending goals.
2020 provided some unique opportunities for spending changes that you may want to make permanent. Many people saved money due to restrictions on travel, dine-in eating, and entertainment venues. If your budget benefited, you may want to consider making those spending cuts permanent.
Focus on the Future
Sadly, COVID-19 cut many lives short unexpectedly, and it often left these people isolated in hospitals and assisted living facilities unable to consult with family, friends, or planners who could help them with financial paperwork. Future financial planning, whether it’s outlining your wishes for your estate or solidifying your retirement savings plan, is vital.
One smart resolution is to create a detailed retirement plan and stay with it. Do you want to continue your current lifestyle after you retire? Downsize your home and lifestyle? A planner can help you figure out how much you need to save to achieve your retirement goals and show you how to organize your financial documents to keep your spending and savings up to date. With a retirement plan in place, make it your resolution to follow it.
Estate planning is another key factor in planning for your financial future. A financial planner can talk to you about your goals for your estate and help you put plans in place now.
Pay Off Debt
Aside from causing anxiety, debt can hold you back from living the lifestyle you’d like and reaching big goals like traveling the world or purchasing a house. If you struggle with debt, resolving to pay it down is vital.
Financial planners recommend approaching your debt strategically. That means paying off higher-interest debt, such as credit card balances, first. You could also take a wider approach and focus your payments on debts that carry a specific interest rate and above.
Whatever approach you choose, resolve to understand the amounts and interest rates of your debt and create a strategy for tackling them in 2021. And that doesn’t necessarily mean paying them off completely. If repaying 25 percent of your balances in 2021 is realistic, set that as your goal. The satisfaction of reaching it will only serve as a motivator to continue working toward debt-free finances.
Build up Your Emergency Fund
If we’ve learned anything from 2020, it’s that life can change drastically, and sometimes that comes with unexpected financial ramifications such as a job loss or hospitalization. While financial experts recommend shoring up at least six months’ pay in savings for such situations, the Financial Industry Regulatory Authority found that almost half of Americans don’t have enough in an emergency fund. Without savings set aside, you are risking financial disaster.
Savings like this doesn’t happen quickly, so plan to build it gradually by committing to a monthly contribution to your emergency fund. Additionally, set this money aside for true emergencies—don’t dip into it to pay bills or offset extra spending if you can help it.