New Year’s Money Resolution Tips
Crush Your Financial Goals in 2021
New Year’s Financial Resolutions are ideal to help you plan and achieve goals that you want to accomplish in 2021. The trick to achieving any New Year’s Resolutions, especially financial resolutions, is to stay motivated all year long. 2020 might have thrown your financial plans into disarray, but 2021 provides an opportunity to start fresh with the lessons learned during the pandemic. Check out some tips to help you achieve your New Year’s Money Resolutions in 2021.
Avoid Negative Thinking
The negative effects of 2020 don’t have to carry forward to your 2021 financial planning and decision making. Since financial decisions can be both analytical and emotional, you should prepare yourself mentally to alter your habits, otherwise, it will be difficult to achieve your financial goals in the New Year. Start by thinking more positively about your current and future financial situation. Then, begin the New Year with a positive can-do attitude to make it easier to take the basic steps needed to make better financial decisions in 2021. Next, use this new positive mental state to find your motivation for changing your financial habits and achieving goals. This will make it easier to take the basic steps needed to make better financial decisions in 2021.
Find Your Motivation
Knowing why you want to change your financial habits is just as important as changing them. Motivation is the key to everything we do in life. Do you have goals you want to accomplish? Or maybe you want to take control of your money? Or do you want to quit your job and start a business? Whatever you’re reasons are, finding your motivation will be the key to ensuring you change your financial behaviors for good. Without knowing why you want to accomplish something, you’ll be less likely to succeed and more likely to fall into past behaviors. Take 5 minutes to think about your why. Then write your reasoning down so when times get tough or you support to keep going, you can review it and remind yourself of the reason why you’re changing your behaviors.
Review Your Financial Status
Whether using an app or a spreadsheet, you should review your income sources (paycheck, interest/dividends, business cash flow, etc.) and recurring expenses (bills, utilities, subscriptions, debt payments, etc.). Then subtract your income from your expenses to find out how much you have remaining for living expenses and financial goals. This will help you see your cash flow situation clearly and identify any issues early in 2021.
You should also review your assets (checking accounts, saving accounts, investment accounts, retirement accounts, real estate, and personal property, etc.) along with your liabilities (credit card debt, medical debt, student loans, personal loans, mortgages, etc.) to give you a solid overview of your financial situation. You can get this info from your credit report, bank statements, loan statements, and financial institution online portals.
Start with a Flexible Budget
Every year different challenges arise in life that causes your budget to lose its balance, whether it’s unexpected expenses, life events, or increased bills. The key to managing your finances better is to start with a realistic, flexible budget. By having flexibility built into your budget, you’ll have a cushion to pay for any unexpected or increased expenses, as well as have extra cash to save for your financial goals. If you already have a budget in place, now is the time to review it and optimize it as much as possible to build a cushion or find additional money to save for your goals.
Identify Potential Near-Term Expenses
Identifying potential expenses that could occur in the next year will allow you to plan for them in advance. These are expenses like insurance deductible/copays, real estate taxes, or home/auto repairs. Putting some extra money aside upfront or throughout the course of the year will help you be less stressed when these expenses occur, as well as have the money to pay for these expenses when you need it, instead of using cash from your paycheck. You should save this money in an online saving account for ease of access and higher interest rates, as well as it being out of sight, out of mind.
Manage Your Debts
Debt management is a huge part of your financial health. Taking on too much debt can cause financial strain on your budget due to the higher payments needed to repay the debt. Additionally, overspending and not following a budget can cause you to take on additional credit card debt, which can further compound issues. You should make sure that you have a debt repayment plan for any credit card debt or loans you take on. Having a debt repayment plan will ensure you’re able to manage the payment and pay off the debt in a timely manner. For example, paying off your credit card every month will allow you to better manage your spending and debt levels. Additionally, you should think about all costs associated with what you’re buying. For example, if you’re taking out a mortgage to buy a house, in addition to the mortgage payments, you’ll also need to pay taxes, insurance and maintenance costs.
Allocate Your Cash Savings
You should reallocate the cash in your savings accounts to different accounts with specific purposes. Start by setting up a Rainy Day Fund and Emergency Fund (check out our Emergency Fund calculator here). These funds are the basis of financial security and will allow you to start building your financial foundation. After you’ve allocated your cash to these funds, you should then allocate the remaining cash to short-term goals, such as traveling, getting married, or buying a home. If you have cash remaining after funding all of your short-term goals, you should then consider investing the remaining funds to save for medium- to longer-term goals, such as starting a new business, education expenses, or retirement, or come up with some additional short-term goals.
Review Your Retirement Income
If you are retired or close to retirement, you should review the various sources of income that will fund your retirement, such as social security, retirement accounts, pensions, and rental property income. Since you’ll no longer be working in retirement , these will be your only source of income going forward and it’s better to know what you’ll have than to be surprised when you retire. You should then create a retirement budget to plan the type of retirement lifestyle you want and can afford. Also, if you have rental properties pre-retirement, you’ll want to ensure that these properties are cash flow positive (rental income is more than the expenses). If this is not the case, you should reassess these properties prior to retirement so they don’t impact your retirement cash flow.
Gaining financial security and achieving your goals in 2021 will take time and patients, but you don’t have to go at it alone. At Fisecal, we’ll be there for you every step of the way to ensure your budget is flexible enough for any unexpected expense, help you find money to save for your financial goals, and keep you motivated when the going gets tough. We’ll also help you create a realistic debt repayment plan while teaching you how to put your money to work for you. By working with your Financial Coach, you’ll start making quick progress on your 2021 Financial Resolutions.