2020 has been one of the most eventful and saddest years in recent memory. We have had to deal with hardships and heartaches brought on by the Covd-19 pandemic. It’s been an emotional and financial rollercoaster ride for all of us. Thankfully we are now in the midst of the Holiday season and we can find some peace and joy during the last month of the year. Hopefully 2021 will be better for all of us physically, emotionally, and financially.
The start of the new year means new beginnings and a fresh start. Here are five financial tips to help you get on the track financially in 2021.
Tip #1: Build Back Your Savings Better
2020 was a tough year financially. You might have had to take money from your savings more than you would have liked to make ends meet. Make 2021 the year where you build back your savings better. To help you save more and spend less, ask yourself "will this purchase make my life better?". If the answer is no or if it will just add clutter to your home then forego the purchase.
To help you save better, start small by doing things such as:
- Eliminating your morning Starbucks Cappuccino and brewing a pot at home instead
- Cooking meals at home rather than going out to dinner (or ordering take-out)
- Taking advantage of discount and promotions when purchasing new clothes. Never pay full price.
- Evaluating your cell phone plan and find out if there is a better bargain.
- Delaying your gratification to purchase something. Wait a few days and ask yourself if you really need it or just want it because it makes you feel good at the moment.
Take the money you that you would normally spend for these activities and place it in your savings account. You’ll be surprised at how quickly your balance will grow. For example, the price of an average specialty drink at Starbucks is around $4. If instead of buying that daily cup of coffee, you placed the $4 in your savings account, you would have $1,460 at the end of the year!
Tip #2: Establish an Emergency Fund
Creating an Emergency Fund does not sound like fun because you can’t enjoy it. The money just sits there and you can’t touch it. However, an Emergency Fund is one of the most important things you can save for. It provides you with that extra peace of mind knowing that if your car unexpectedly breaks down, you have the money to pay for it and you don’t have to dig yourself into a deeper financial hole by having to pay for that unexpected expense on your credit card.
Tip #3: Commit to Reducing Your Debt
Reducing your debt is like losing weight: it is difficult to do but so satisfying when you accomplish your weight loss goal. If you have multiple credit cards, which one do you focus on first? Instead of focusing on the credit card with the highest balance, I suggest that you focus on paying off the credit cards that have the highest interest rate first. Once you’ve paid that credit card off, move on to the card with the next lowest interest rate. Just like seeing the pounds slowly come off, making small changes can start becoming a positive habit and can make it easier for you to continue with the program.
Another alternative would be to apply for a low interest credit card and consolidate all of your credit card debt into that credit card. I would be very cautious with this strategy as this could be what got you in trouble in the first place. There is usually a specific period where you have this low interest on balance transfers. Once that period expires, the interest rate jumps to the higher rate. So, if you use this strategy, ask yourself if you can repay the credit card completely before the rate increases. Also, if you get a consolidation loan and keep making more purchases with credit, you probably won’t succeed in paying down your debt. If you’re having trouble with credit, consider contacting a credit counselor first.
Tip #4: Understand Where Your Money Goes
Believe it or not, unless you are watching every penny that you make, you don’t consciously spend your money so it’s no surprise that at the end of each month we wonder where all of our money went. If you track exactly where your money is going, it will give you a greater idea of where your overall financial picture stands and will help you determine what areas you should cut to help trim your debt and increase your savings. Simply understanding where your money is going can help relieve anxiety, which in turn, can start to reduce financial stress. While Quicken provides you the most robust method of tracking your spending (and is a method I strongly recommend), there are simple on-line apps that can quickly help track your spending. Mint, YNAB, and EveryDollar are some of the few popular apps on the market. Of course, there is still the old-fashioned paper and pencil method for those of you who prefer the traditional way of tracking your spending.
Tip #5: Focus on Experiences instead of “Things”
Research shows that people enjoy experiences more than possessions, so this is a great way to make better use of your money. Rather than buying that new pair of shoes or expensive outfit, consider these fun options instead:
- Learn a new language
- Sign up for cooking classes
- Attend yoga and group exercise classes
- Take an art class at your local community college
- Go on a daylong or weekend a road trip.
While this is still spending money, focusing on experiences can help reduce stress and burnout while providing you with positive experiences.
2020 has been extremely stressful on a personal, professional, and financial level. As we prepare for the upcoming year, use these tips to help reduce your financial anxiety and get you on the right track to build back your finances better in 2021.
This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. The opinions expressed and material provided are for general information only.