Financial Advice for 2021
2020 is officially history, and it is truly a celebration. However, while no one will regret putting this pandemic year in the rearview, do not get too caught up in celebration. Ringing in the New Year is not only about saying goodbye to the past; it is also about looking ahead.
People often neglect financial commitments when making New Year’s resolutions, favoring instead beach body makeovers and time spent with family. While there is room on the resolution list for all kinds of positive changes, focusing on your finances should be priority number one, especially in retirement. There are at least four financial moves everyone should make in the new year, regardless of age.
1. Create a Budget
Before considering any investments or significant purchases, you need to set aside time to figure out a new budget. Assuming you created a budget last year, now is the time to review how successful that financial plan was.
If you are new to budgeting, consider setting aside January to get an idea of your spending habits. During the month, save every receipt, even the insignificant ones for buying a pack of chewing gum. The objective is to figure out precisely where every penny of your income goes.
Once you know how you are spending your money, you can figure out areas to save. You can identify what percentage of your income goes to frivolous or fun purchases (Hopefully, no more than 30%). You can also see what percentage of your income is spent on needs, which should be 50% or less for a healthy fiscal cycle. When you know how you spend your money, you can create a detailed budget, allowing yourself to feel in control of your spending and saving habits.
2. Use High Yield Savings
Do you have a savings account, and if so, how much do you regularly save? Typical savings accounts do not allow you to maximize your investment. Talk to your banker to learn about high yield options. There is no reason that a simple savings account should not be earning.
3. Talk To a Financial Advisor
Many people struggle to stay on top of their finances, and there is no shame in admitting you need help. While you might have a friend or relative good with money, you might be better off contacting a professional for assistance, such as a financial planner. Using a pro means keeping money and family separate, which is often the best idea. A financial planner or advisor can also provide insight into savings and investment plans that suit your specific stage in life.
4. Limit Credit Card Usage
The most significant piece of advice for anyone looking to get their financial house in order is to leave the credit cards alone. Do not use them, and try to pay down your debt. Credit cards are short-term tools, and the only way to use them is to pay them off every cycle. You do not want to allow interest to accrue. For the new year, try to limit or avoid credit card use altogether.
Celebrating the new year by making resolutions is a good idea; it leads to self-improvement and often better health, but do not forget to include your finances in those future promises. Creating a budget and sticking to a plan to rebuild your financial house is the best way to spend the first few months of the new year. Leave a comment if you have any financial tips for the new year.