7 Financial Resolutions to Start 2021 Right: Going Back to the Basics
Insights COVID-19Looking Forward to the Year Ahead
I know this has been a crazy year all around. Never in my lifetime have I seen something as disruptive to society as this pandemic.
Of course, it wasn’t just our daily routines that were impacted. The economy and our investments saw unprecedented swings in 2020.
Yet, we are an optimistic nation. As the economy was set to climb out of a deep hole, investment legend1 Warren Buffett said, “I remain convinced…nothing can basically stop America. The American miracle, the American magic has always prevailed, and it will do so again.”
Last year’s strong finish for stocks suggests Buffett is on the right track.
Without a doubt, we all faced challenges in 2020.
But throughout this crisis, I’ve heard countless stories of innovation and resilience, along with endless accounts of people selflessly helping others. And every story I hear gives me the hope and the strength to believe in a better year.
With hospitalizations still at all-time highs, we’re not out of this crisis just yet. But with the dawn of the new year, I think it’s a nice time to look back at our successes and our challenges, and to come up with new goals for the year ahead.
(Oh and did I mention that Simon (my cat) is just getting cuter and cuter?)
7 financial resolutions to get you started in 2021
New Year’s resolutions are a little cliché, but they are one tool that offers us guideposts as we start the cycle again. Surveys2 say that more than half of adults make resolutions—yet, we know far fewer keep them.
The top two resolutions center on money and health. Now, my goal is to help you create resolutions for your finances :)
So, here are a few options I’d like to offer up as goals for you. A few of these may seem simple, but the foundation of any financial plan is built on the basics—the fundamentals.
Some may apply to you. Others may not. But I encourage you to grab ahold of what is realistic.
1. Make/reassess your budget.
You all might know how important I feel keeping a budget is. You won’t know where your money is going until you track your expenses. You might be surprised how much you spend on random items. You’ll also find ways to reduce some expenditures, which puts — and keeps — money in your pocket.
So, if you don’t have a budget in place, now is a great time to implement one! And if you are sticking to a budget, maybe review it and see what changes you can implement for the better.
If you’re someone who has received access to eMoney in this last year, check out the budgeting software found inside the “Spending” tab. You may find it very helpful.
Of course, some of us are saving money due to the pandemic. I know I’m missing restaurants, concerts, movies and my routine massages—ironically, this was the year I needed them more than ever. But what new habits have we learned in 2020 that we can carry over into the new year?
2. Establish an emergency fund.
Nearly 30% of Americans don’t have savings for an emergency3. Start with the stimulus money Congress gifted you, and gradually save until you have at least three months of liquid cash you can set aside in the event of an emergency. Six months is optimal.
One of the biggest things we seek to avoid is digging into our retirement accounts for emergency money. Preparing for emergencies by stashing six months' worth of cash savings into an emergency fund can save you on withdrawal penalties, taxes, and time spent waiting for the withdrawal to come through!
3. Start or increase saving for retirement.
Maybe you don’t think you can afford it. But let’s view this from another angle.
When an unexpected bill comes in, we always seem to find a way to pay for it. If your car breaks down, you know you’ll need to get it repaired. Look at retirement as your car that needs to be fixed.
An incredibly easy way to save is to sign up for automatic drafts into your 401k or IRA. Do you want to save 10% of your income? But does that goal seem out of reach? Then start with baby steps—two or three percent of income is a perfectly fine starting point.
Then double it in April and increase it by the same amount in July. Continue every three months until you hit your goal. Work this into your budget… which you should look at/create!
4. Pay down and pay off debt.
Even when you’ve created a budget, we all know how debt can sneak up on us weigh us down. I sometimes think my Nordstrom’s card has a mind of its own…
Make paying down your debt a priority.
Put away your credit cards until they are paid off. Pay more than the minimum balance and focus on high-cost debt first. When one card is paid off, put that payment towards your next loan. You’ll be surprised at the headway you’ll make.
And one more thing. When you’ve paid off a loan, reward yourself. Simple rewards are excellent incentives that keep you on track to the top of your summit.
5. Keep debt reasonable.
If you have all your credit card, student and auto loans paid off, you are ahead of the game. But just because you can borrow doesn’t mean you should.
Keep monthly outflows for your home below 28% of your pretax income and your total monthly debt payments (including credit card, mortgage, auto, and student loans) below 35% of your pretax income.
These principles — in tandem with a well-kept budget (sick of hearing about budgeting yet?) — will help keep you on sound financial footing.
6. Contribute to a cause near and dear to your heart.
Consider incorporating regular financial gifts toward your favorite charity or charities. Can you set up an automatic draft? If so, even a few dollars each month means you will be making a difference. Or you could choose to volunteer your time, which I know can get tricky with the social distancing measures.
7. Get your affairs in order.
Finish setting up a will or trust, update your beneficiaries, update life insurance, and consider a living will. A living will reflects your preferences to close family or friends regarding end-of-life medical treatment. Also, consider a durable power of attorney, which allows someone to make health-care decisions for you if you are incapable of doing it yourself.
These seven resolutions are simply guidelines and suggestions. If it seems a little overwhelming, then focus on one or two. Or grab hold of the ones that apply to you and tackle one per month.
As a reminder, I am here to assist you, encourage you, and point you in the right direction. If you have questions, you can schedule an appointment on our site, or feel free to call or email me!
