Give your financial life a boost.
There’s a good chance that many or all of the financial resolutions you made in 2020 didn’t happen on account of the COVID-19 pandemic. Of course, it’s hard during any year to achieve resolutions, such as resolving to exercise more and eat healthier. At least with last year, there was a good excuse.
But in 2021, things are going to be different. We’re going to pay down credit card debt, stick to our budgets and put more money toward retirement. Because even in the midst of a pandemic, and maybe especially because of it, we shouldn’t be engaging in bad financial behaviors.
If you want 2021 to be a better year financially, consider making these 10 financial New Year’s resolutions.
Set a budget — and don’t forget it.
Aim to focus on a weekly budget rather than a monthly one, suggests Lamar Brabham, CEO and founder of Noel Taylor Agency, a financial services firm in North Myrtle Beach, South Carolina.
“Generally speaking, most people find managing a weekly budget is easier to digest than even a monthly budget,” Brabham says, adding that while it’s important to set a budget, it’s vital to return to it and study it.
Most people fail with budgets, he says, because they don’t look at their budget often enough. “If you actually create a budget and resign to spend five minutes a week checking it, then you can end up in the elusive 20% of people who are successful in hitting their New Year’s resolutions,” he says.
Put more money away for retirement.
If you’re already saving for retirement, ask yourself if you could be putting even more money away.
And if you haven’t started putting any money away, Brabham says, “it’s time to pick your vehicles. Usually an IRA, cash value life insurance, individual brokerage account, etc. is a good place to start.”
Don’t forget your company 401(k). If you set your account up so that money is automatically withdrawn from your checking account or paycheck, you’ll be more likely to save money for the future, Brabham says.
The goal should be to structure “a forced savings plan,” he says.
Strive to improve your credit score.
If you’re not planning to take out a loan in the near future, this is an especially smart goal. Why? Because you can work on building credit — without stressing over it.
If you do have a major purchase on the horizon this year, such as buying a house or a car, improving your credit score is a wise goal — unless you already have stellar credit. In that case, just keep it high.
How can you improve your credit score? Two of the best ways:
1. Pay your bills on time.
2. If you have credit cards, aim to pay them off in full every month — or least keep the level of debt you’re carrying to under 30% of your available credit.
Pay your bills on time.
As noted, paying your bills on time will help keep your credit score healthy. It will also save you money.
After all, most bills with late fees usually add 10% to 15% to the total monthly payment. That’s a lot of money you could potentially be wasting every month, even if you’re only late with a handful of sporadic bills.
Also, if you’re often paying bills late, it could be a sign that you need to be better organized financially. It may also, of course, simply reflect that you need to make more money.
Make a plan to achieve your goals.
This resolution is more about the process of making resolutions, but it’s important to think about.
Many financial resolutions fall apart because people have a goal but no plan to achieve that goal, according to Whitney Ditlow, a Northwestern Mutual financial advisor based in Miami.
“When it comes to your financial goals, the more specific you are, the better. For example, if you want to spend less on takeout or entertainment this year, but that’s the end of your instructions, it can be more difficult to make real, sustainable progress,” she says. “Instead, create tangible guidelines, like resolving to spend $25 less on groceries each month or aiming to reduce your entertainment costs by a specific percent.”
Create an emergency fund.
Yes, this is the year you establish a rainy-day fund. Not next year. Not five years from now. Ditlow encourages everyone to open a savings account immediately that will serve as your emergency fund — and if you already have one, start putting more cash into it.
“A good goal to keep in mind is having around six months’ worth of expenses saved in this account. However, it can’t hurt to have a bit more saved given the uncertainty at the moment, especially if your income tends to fluctuate,” Ditlow says.
If six months seems impossible, try thinking about how much you tend to come up short every month — and aim to put that amount away. “The goal of this account is to allow you to cover unexpected expenses without having to use a credit card,” Ditlow says.
Pay down your debt.
Paying down debt will free up funds and allow you to achieve other goals. “Do all you can to keep debt to a minimum. Managing debt can help you free up some money to contribute to your retirement plan,” says Jeff Busch, a partner at Lift Financial in South Jordan, Utah.
Of course, this is where being specific about financial goals helps a lot. If you tell yourself to lower your debt, you may not. A few strategies to try:
1. Always pay more than the minimum payment for your credit cards.
2. Don’t take out more credit card debt while you’re still paying off credit card debt.
3. Employ a strategy. For instance, if you have multiple credit cards, put the most money that you can toward the one with the highest interest rate. Once that’s paid off, put most of your money toward the card with the next-highest interest rate.
Think meaningfully about insurance.
Why ponder insurance in 2021? Because you may be over-insured — or underinsured. And insurance can make or break your finances.
Do you feel like you pay too much for your deductible? Are your co-payments extremely high? Maybe this is the year to change health insurance plans.
Do you bundle your car and homeowners insurance? You can often save money on your premiums, sometimes as much as 25%, by doing that. If you don’t bundle them, maybe this is the year to call your insurance agent and ask how much you would save.
Do you have life insurance? Do you have a spouse and children who would be financially destitute without you making a living? Then it’s long past time to buy a policy.
Audit your finances.
Start looking at where you’re spending money every month, and ask yourself if the cost is worth it. Some areas to examine include:
1. Streaming services. Maybe you’re paying for one or two that you don’t use often.
2. Groceries. Do you often throw out food? Maybe it’s time to purchase smaller packages of certain items. Or if you always do takeout, maybe it would be cheaper to start going to the grocery store more often.
3. Gas. Maybe there are ways you can cut spending on gas.
You get the point. Study your financial life, and try to trim some unnecessary spending.
Designate a “money day.”
Why do you need financial resolutions in the first place? Probably because you’re organizing your finances on the fly.
Wendy Barlin, a certified public accountant in Los Angeles, suggests picking one day a week that you refer to as your “money day.”
“One day a week, pay your bills, check accounts, assess what was spent last week and allocate for the coming week,” she suggests.
It’ll keep you organized — and less stressed, Barlin says.
10 Financial New Year’s Resolutions for 2021:
— Set a budget — and don’t forget it.
— Put more money away for retirement.
— Strive to improve your credit score.
— Pay your bills on time.
— Make a plan to achieve your goals.
— Create an emergency fund.
— Pay down your debt.
— Think meaningfully about insurance.
— Audit your finances.
— Designate a “money day.”
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Update 01/04/21: This story was published at an earlier date and has been updated with new information.