Financial priorities. Losing weight. Exercising more. Reducing Stress.
New Year’s resolutions are a common annual tradition. Do you know what else a common annual tradition is for many of us? If you answered getting off track from what we set out to achieve with our resolutions…you are correct!
If you want to take control of your money in 2021, creating snackable goals rather than strict resolutions could be the secret sauce to success.
Of course, your financial priorities will depend on your current financial and personal situation. But here are a few ideas to take on in the New Year.
2021 Financial Priorities
Track Your Spending
Some people seem to be natural-born budgeters. While for others, creating and following a budget is an ongoing battle. If you’ve never successfully budgeted before, 2021 might be your year to give it another go.
Try a few budgeting apps and programs to see which one works best for you. Some are free, and many offer free trials, and you can often link your financial accounts to sync recent transactions.
You can choose how much you want to spend in different categories. The program can then add up your income and track your progress throughout the month.
It can take a few months to get a handle on budgeting. And some people feel constrained at first. But, many find that budgeting leads to feeling in control of their finances.
Even if you don’t want to put time and energy into budgeting, you can use a budgeting app to corral your bank accounts and credit cards in one place to track your monthly spending. Having a centralized place to check all your purchases makes it easier to spot fraudulent or unexpected charges. It may also be easier to identify ways to cut back and save money.
Create a Debt Payoff Plan
Taking a strategic approach to paying off debts can save you money and help you become debt-free sooner. If you decide paying off debt is among the financial priorities you will focus on this year, here are a few steps you can take to create a personalized plan:
List all your debts
Create a spreadsheet or write a list of all your current debts (including any subsidized or unsubsidized loans). Next to each, add the current balance, monthly payment, interest rate, repayment terms and special provisions, such as a promotional interest rate. You may be able to find these on your monthly bills, or by logging into your online accounts and reviewing the loans’ terms.
Choose the debt avalanche or snowball method
These are two popular debt payoff strategies. The avalanche method can save you money, but the snowball method can be more motivating as you’ll get to cross debts off your list sooner.
- Debt avalanche approach: You’ll order your debts by their interest rate and focus on paying off the highest-rate balance first. Then, work your way down the list.
- The debt snowball method differs because you’ll focus on paying off the lowest-balance debt first.
Look into debt refinancing
Refinancing debt involves taking out a new loan to pay off current debts. You can save money by refinancing if you qualify for a lower interest rate. Or you could lower your monthly payments by extending the repayment term — but you’ll pay more overall. Many people refinance their mortgages when rates drop. You can also look into refinancing and consolidating credit card balances with a personal loan.
These approaches are generally helpful, but you’ll also want to personalize your plan. For instance, you might decide to use the debt avalanche method to pay off debt. But you exclude your student loans because you’re on track for student loan forgiveness.
Build an Emergency Fund
An emergency fund is money that you set aside in an accessible place, such as a savings account, to use during a crisis. Having funds for an unexpected cost like a set of new tires, medical bill or home repair can keep you from having to miss payments or take on high-interest debt.
Ideally, your emergency fund will be able to cover three to six months’ worth of necessary expenses. But, if you’re just starting, set a goal of saving up $500 or $1,000 to begin.
You’ll also want to determine if it’s best to build an emergency fund or pay down debts. As a general rule of thumb, paying down high-interest debt (e.g., double-digit interest rates) may take priority. Then, focus on establishing an emergency fund before paying down low-interest debts.
Increase Your Discretionary Income
Your discretionary income is what’s left after you’ve paid all your necessary expenses, including taxes, housing and food.
You can increase your discretionary income by cutting expenses and increasing your income. Your budget or spending tracking can come in handy here, as you can look for purchases to cut back on. Increasing your income may mean taking on a side gig or working towards moving up in your career.
If you can increase your discretionary income, you can then choose to use the extra money to pay down debts sooner, build your emergency fund or for fun.
Assess Your Retirement Savings
Unless you’re nearing retirement age, the long-term nature of retirement savings means you won’t need to do a lot of day-to-day (or even month-to-month) management. Still, you want to check in on your account and contributions to make sure you’re on track.
If you save within an employer-sponsored plan, such as a 401(k), review your investment choices and contribution amount. You can use a retirement planning tool to see if you’re on track to meet your goals and adjust your contributions accordingly.
Also, look for additional ways to save for retirement. For example, if you max out annual 401(k) contributions or your employer doesn’t offer matching contributions, you could set aside money in a tax-deferred individual retirement account (IRA) or after-tax contributions to a Roth IRA.
Learn Something New About Personal Finance
Few people take a personal finance course in school, even though personal finance education can be helpful throughout your life. Now is as good a time as ever to fill that knowledge gap.
You don’t need to learn everything. Choose a subject or two that are especially interesting or important to you right now, and set aside time to educate yourself. For example, you might want to learn about:
- Estate planning
- Retiring early
- Tax planning
- Building credit
The topic may dictate your approach. For instance, if you’re interested in learning more about estate planning, or the the reasons to have a trust, look for resources from your employer and contact an estate planning attorney.
If you want to study on your own, you can find many free resources, including online webinars, blogs and library books.
Monitor Your Credit
Checking your credit reports can be an easy item to check off your list. You can get a free copy of your credit reports at least once every 12 months from each of the three major credit bureaus — Experian, Equifax and TransUnion — on AnnualCreditReport.com.
Look for any unusual activity or negative marks, such as an account you don’t remember opening or a late payment when you’re sure you paid on time. The former could be an indication of identity theft, and the Federal Trade Commission can help you create a personalized recovery plan.
If you spot errors, you can file a disputes with the credit bureaus and they’ll investigate your claim. Your credit scores are based on your credit reports. And when negative items are corrected or removed, your credit scores may improve as a result.
Additionally, sign up for credit monitoring to receive automatic notifications of unusual changes in your credit reports. You want to monitor your reports from all three major bureaus, as they’re competitors and your reports may differ from each bureau.
There are paid services, which often come with additional features, such as identity theft insurance. Or, you can sign up for free options from Experian and Credit Karma to monitor all three of your credit reports.
Get Organized and Review Your Coverage
Make a point of reviewing your employee benefits and your insurance plans early in the year. You want to make sure you’re familiar with your benefits in case there’s an emergency.
You may even discover that you have access to benefits that can help you accomplish other goals. For example, some employers offer employee assistance programs (EAPs) as a fringe benefit. The offering can vary, but you may be able to get free financial planning, mental health support and legal counseling.
Stay Flexible and Go for Your Goals
While 2020 showed that we can’t plan for everything, starting 2021 with a roadmap can be important for tackling your financial goals. Be flexible with yourself and know that your financial situation may change throughout the year— that’s okay. But when that happens, you can review your plan, continue making progress on the financial priorities that make sense and set new priorities based on your needs. Good luck, and Happy New Year!
What financial priority will you be focusing on in 2021? Share your tips and goals with other readers in the comments below.
This informational material shall not be considered financial advice. The Hartford assumes no responsibility for any financial, investment, or tax-related decisions. Those seeking resolution of specific financial, legal, tax, or business issues, questions, or concerns regarding this topic should consult their own financial, investment, tax, legal, or other business consultants, advisors, or other professionals.