- 11 Financial Resolutions For 2021
- 2. Pay down credit card debt
- 3. Can’t stick to a budget? Create a spending plan instead
- 4. Automate your savings
- 5. Start an emergency fund
- 6. Boost your retirement savings
- 7. Invest more
- 8. Improve your credit score
- 9. Cook more meals at home
- 10. Update your beneficiaries
- 11. Look for ways to boost your income
- Learn more:
- How To Make a Financial New Year’s Resolution You’ll Actually Keep
- 1. Recognize That Financial Resolutions Can Be Tricky
- 2. Identify and Understand Your Motivation
- 3. Aim for Small Improvements
- 4. Ditch Your “All or Nothing” Mindset
- 5. Anticipate Failure and Acknowledge Your Progress
- Financial New Year’s Resolutions for 2020
- Insight Wealth Strategies,LLC (IWS) and its affiliates do not provide tax, legal or accounting advice.This material has been prepared for informational purposes only, and is notintended to provide, and should not be relied on for, tax, legal or accountingadvice. You should consult your own tax, legal and accounting advisors beforeengaging in any transaction
11 Financial Resolutions For 2021
December is winding down, and that means it’s time to think about resolutions for the upcoming year. After a year 2020, financial resolutions are probably top of mind.
The beginning of the year is the prime time to focus on what’s going on with your money. With the right plan in place, you can stick to your financial resolutions and end the coming year in a better place than you started it.
To help you get started, here are 11 financial resolutions to set, along with expert tips on how to keep them.
While the coronavirus pandemic has wreaked havoc on many parts of life this past year, it has also provided some opportunities. For example, you can now secure record low mortgage rates, making this a prime time to refinance and lower your monthly payments.
As for student loan refinancing, federal student loans are in forbearance until Jan. 31, meaning interest is suspended and payments are not required. However, this does not apply to private student loans and you may want to consider refinancing these types of loans to lock in lower rates.
2. Pay down credit card debt
Consumer credit card debt dropped in 2020 for the first time in eight years.
This data came as a bit of a surprise considering the pandemic-created recession, but it’s a hopeful sign that consumers are getting their debt under control.
If you have credit card debt, consider making it a goal to pay it off. There are a few approaches you can take, but two common strategies are:
- Paying off your highest debt first (the debt avalanche method)
- Paying off your smallest amount of debt first (the debt snowball method).
If you’re struggling with payments, consider credit counseling, a low-interest balance transfer, a personal loan or even debt settlement.
3. Can’t stick to a budget? Create a spending plan instead
If you’ve had trouble sticking to your budget in the past, consider ditching the traditional budgeting method and create a spending plan instead, says Loreen Gilbert, an experienced wealth manager and CEO at WealthWise Financial Services.
“The concept of living on a spending plan instead of a budget can give you freedom and peace of mind,” Gilbert says.
A spending plan allows you to choose what you spend your money on instead of restricting yourself on what you can’t spend. Start by determining your monthly fixed income and then decide what spending categories are most important to you.
As a general rule of thumb, you should start with a necessity bucket, which ly includes semi-fixed expenses such as rent, utilities, groceries and funding your savings accounts. After you’ve identified how much will need to for those expenses, you can create other spending buckets, such as a fun bucket, that the remaining funds can go toward.
Money management apps Mint are a good tool for keeping track of where your money is going. You can also find these tools on some banking apps as well.
The end result is the same as budgeting, minus the restrictive rules — making it a good strategy for those who don’t being told what they cannot do.
4. Automate your savings
One of the easiest ways to build your savings is automating your contributions.
When you automate your savings, you won’t have to think about how much money you want to set aside each month or be tempted to put less into savings.
Most employers allow you to divide your paycheck so that different amounts go into different accounts. If not, you can ly set up automatic transfers with your bank. Regardless of which option you choose, make it a priority to have your savings automated.
5. Start an emergency fund
A Bankrate survey from June found that not having enough emergency savings was Americans’ top financial regret since the coronavirus began. Bottom line: Don’t overlook your emergency fund.
The new year is as good a time as any to start (or grow) your emergency fund. In general, experts recommend saving three to six months of living expenses. Start by opening a separate and dedicated high-yield savings account. After that, consider these four tips:
- Evaluate your spending and look for areas where you can save.
- Set a savings goal.
- Set up automatic contributions.
- Try to increase your contributions over time.
6. Boost your retirement savings
Saving for retirement is one of the most important aspects of a sound financial plan.
“Use 2021 to boost or maximize contributions to 401(k)s or HSAs, plot out holistic retirement goals (e.g., Where will I live? Will I work? How much to budget for travel?) and, no matter your age or life stage, take meaningful steps to boost your financial wellness,” says Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America.
There are a few ways you can boost your retirement savings. For one, if your employer offers a 401(k) match, be sure you’re contributing enough to get the full match since it’s essentially free money.
Another thing to consider is looking at where your money is being invested. Many experts recommend investing in a diverse portfolio of assets to reduce your risk but still achieve attractive returns.
Finally, it’s important to remember that the only way you get the market’s long-term average return of 10 percent is by holding through all the tough times.
“Your retirement savings will grow quicker if you pick a solid long-term plan and then stick with it through the good and bad times, but especially the bad times,” says James Royal, Bankrate investment and wealth management reporter.
Royal says that investors should continue adding to the account and keep from selling, no matter how tempting it may be.
7. Invest more
Don’t limit your investing to only making tax-advantaged retirement contributions.
If you already have an emergency savings account, you might consider setting up an investment account to invest for goals with specific time horizons, early retirement or saving for a house.
“While it’s great to max out your tax-advantaged retirement accounts — $6,000 in an IRA and up to $19,500 in a 401(k) — you’re going to have even more opportunities if you save in a taxable account as well,” Royal says.
Royal adds that some of the biggest perks of investing outside of your retirement account include:
- No limit to what you can save.
- Tax deferral benefits on unrealized gains (stocks you don’t sell).
- Immediate access to the cash without penalties or other restrictions.
If you’re just getting started, you may want to consider looking into a robo-adviser, which will do the investing for you after taking your risk tolerance and ideal earnings into consideration.
8. Improve your credit score
A good credit score varies depending on the scoring system. For example, FICO considers a good score to be between 670 and 739, while the VantageScore scale considers 661 through 781 to be good.
Either way, your credit score plays a critical role in determining whether you get access to financing and other financial services you need. Your credit score can influence your car insurance rates in some states, as well as how much you pay in interest when you get a loan.
Visit AnnualCreditReport.com to get a free copy of your credit report and score. You’re typically only able to access one free report a year, but it’s since been increased to once a month until April 2021 as a result of COVID-19.
To increase your credit score, consider these 4 tips:
- Pay all bills on time and in full.
- Lower your credit utilization ratio.
- Take advantage of score-boosting programs, ExperianBoost.
- Don’t apply for new accounts too often.
9. Cook more meals at home
This may be something you’ve already begun to do with many restaurants around the U.S. being limited to takeout only. Keep it going into 2021.
You can keep it fun (and easy) with meal subscription services, Blue Apron, which gives you the option of picking new recipes each week along with delivering perfectly measured ingredients straight to your door.
On the other hand, if you’ve turned to takeout as your go-to during this time then consider giving cooking a try and see how much you save. After giving it a go, calculate your savings and Consider putting those savings toward paying down debt or building up your emergency fund.
10. Update your beneficiaries
Have you experienced a life-changing situation recently? If so, your beneficiaries might be date.
“If you haven’t looked at it in a while or especially if there has been a change in family dynamics such as a marriage or divorce, review the beneficiary designation on your life insurance and retirement accounts to make sure it reflects your current intentions,” says Bankrate Chief Financial Analyst, Greg McBride, CFA.
This includes checking your retirement and bank accounts, insurance policy and other financial accounts to make sure your beneficiaries are up to date.
Adding a beneficiary to your accounts is critical to ensure your assets will go to the person you intended them to. Additionally, it’s important to note that beneficiaries trump wills, so make sure the two documents are aligned in their directives.
11. Look for ways to boost your income
Sometimes, it’s less about savings and cutting back and more about increasing your income.
“If 2020 has taught us anything, it’s that life is uncertain and having multiple income streams is more important than ever,” says Laura Gariepy, business coach and founder of Before You Go Freelance, a blog that offers advice for aspiring freelancers. “People are realizing that self-employment is not inherently more risky than traditional employment because there’s built-in income diversification when you have multiple clients or customers.”
There’s a variety of ways you can increase your revenue streams. Freelance work, for example, is great for those who have a specific skill to offer others. But there are also less technical side hustles, dog walking, to consider. Additionally, if you have a bit more money to front, then you could consider investing in rental properties.
The bottom line is there’s plenty of ways to passively increase your income, it’s just a matter of finding what works for you and your situation.
By finding different ways to increase your revenue streams, you aren’t entirely dependent on one income source. Not only can that strategy help you make more money, increase your savings and reach your goals, it can also provide some protection if you lose your primary job.
How To Make a Financial New Year’s Resolution You’ll Actually Keep
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After a strange and frustrating 2020, you’re probably looking forward to a fresh start in the new year. And if this year threw your finances for a loop, a money-related New Year’s resolution might be on your list of ways to improve your life in 2021.
Nearly two-thirds of Americans are considering a financial resolution for the new year, according to Fidelity Investments’ Annual Resolutions Study. The most popular financial resolutions among people considering one? Save more money, pay down debt and spend less money.
But simply making a resolution doesn’t mean you’ll be able to keep it. Only about 40% of people who make resolutions are still on track to meet their goals by June. If you want to be in the group that succeeds, you should be prepared for unique challenges that can make it harder to achieve financial goals.
Here’s why it’s so hard to keep a New Year’s Resolution—and five ways to make a financial goal you can actually achieve.
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1. Recognize That Financial Resolutions Can Be Tricky
Talking about money can be hard, which means you may not feel comfortable shouting your financial goals (or your challenges) from the rooftop. And that can make it harder to set and stick to a financial goal.
“Finance is an area of our lives far more difficult to address than many others,” says Cecile Lyons, a psychologist specializing in financial psychology.
“There’s a lack of transparency, and a sense of shame that may go along with behavioral patterns a person has or doesn’t have.
” And because you may not feel completely comfortable talking about your finances with others, you might hesitate to tell people about your resolution, or enlist a friend to help keep you accountable as you progress.
As much as you’d to think that improving your finances depends on simple math, it’s much more complex than just the dollars and cents: It’s emotional. “Most money behaviors are emotionally dictated,” Lyons says. “In a split second, our brains make a decision and rationalize it.”
If you’ve been struggling to make ends meet during the pandemic, the challenges of changing your financial habits may be compounded this year. According to Fidelity’s survey, 38% of people will spend 2021 in “survival mode,” focusing on getting by day-to-day instead of being able to look toward the future.
If you spent 2020 dealing with reduced income, employment instability, or health concerns, you may already be familiar with some version of survival mode. If you’re in a tough money situation, remember that you don’t have to set a resolution at all—regardless of how you approached previous new years.
But you still feel drawn to setting a resolution for 2021, it’s even more important to make a goal that’s achievable.
Read more: How To Cope If The Covid-19 Pandemic Has Stretched Your Finances To The Limit
2. Identify and Understand Your Motivation
We make resolutions at the top of the new year because it feels a natural time for change, says Saundra Davis, financial coach and founder of Sage Financial Solutions.
But “It’s January 1” isn’t a good enough reason to stick with your plans to make a financial change.
Instead, you need to think beyond the change itself and think about what the action will do to benefit your life down the road.
Rather than saying, “I’ll make a budget in the new year,” for example, think about what having that budget will do for you. Maybe it will give you peace of mind that you can pay all your bills each month. Maybe it will allow you to see opportunities to save more.
This is the transtheoretical model of change, Davis explains: Once you decide you’re ready for a change, you’re not necessarily ready to change immediately—no matter how much you may want to flip a switch and improve your life. “Once you can think about [how you’ll benefit], you can unpack how to prepare for January 1,” Davis explains.
3. Aim for Small Improvements
If your resolution is too big, Lyons says it’ll be hard to see your progress. It’s good to decide you want to be more financially stable by the end of 2021, for instance, but that’s a broad goal that doesn’t break down what you need to do to achieve this. Nor does it signal what will be different, or how you will know you’ve accomplished anything.
“You need to self-examine so you can bring specificity to your resolution,” Lyons said. Setting a SMART (Specific, Measurable, Attainable, Relevant, and Time-Bound) goal requires that you set parameters around the behavior you’re trying to change. Doing so may feel pain at first, but it forces you to make a plan that you can actually stick to.
Breaking bigger goals into smaller resolutions can help make your progress more attainable, and allow you to see results more quickly—even if that progress is small.
Lyons gives the example of someone who wants to reduce their spending. Instead of cutting yourself off cold turkey, you could decide to set a goal of reducing your spending by 10% in January. At the end of the month, you can do a little math and either repeat the experiment in February, or adjust your goal so it’s more reasonable (or more ambitious!) for the next month.
“You don’t want to nickel and dime yourself in such a way to feel deprived,” Lyons says. “If you set lower expectations that can build on one another, it increases your momentum.”
In other words, once you figure out how to spend 10% less per month, you can experiment with ways to reduce your spending by 15% or 20% each month. It may take longer to reach your ultimate goal, but your change will be more sustainable over the long term.
Read more: Budgeting On A Variable Income In The Gig Economy
4. Ditch Your “All or Nothing” Mindset
Once the clock strikes midnight and you turn the calendar page, it feels the pressure is on to succeed right away.
“We hope that inspiration will become motivation, and that motivation will become action,” Davis says. And then, we expect ourselves to perform that action perfectly every single time. “That’s a big part of the challenge, this notion of all or nothing. We’ve got to get it right or we’re a failure.”
Instead of tying your resolution to performing a task perfectly, Davis recommends thinking about the general path you want to take, instead of getting hung up on your day-to-day success rate.
Take again the example of someone who wants to reduce their spending. Say in January, you’re able to reduce your spending by 10%. But in February, you’re only able to reduce your spending by 7%.
It may feel you failed because you didn’t hit your goal number. But you’re actually still succeeding, even if it’s to a slightly smaller degree than you planned.
Your path to success may not be a straight line, and that’s okay.
5. Anticipate Failure and Acknowledge Your Progress
If you truly mess up, Davis says to pick up right where you left off—don’t start over from scratch. Instead of getting upset at yourself, give yourself space to learn a lesson about yourself and your habits.
Taking time to reflect on what got in the way of your success can help you determine ways to improve your efforts, Lyons agrees.
Check out another common New Year’s resolution: Cutting back on coffee shop visits.
If you decide to give up drive-thru coffee each morning, but found yourself pulling up to that window four times last week, it’s time to rethink the reason you ended up there, Lyons says.
Is it because your morning routine is too rushed to allow you to make coffee before you leave the house? Or is it because you’re convinced the only way you can kickstart your long, tiring day is to get that caffeine jolt from the pros?
“If we can begin to recognize how we sabotage our efforts to change, there’s a much greater lihood that we can intervene and change up our patterns…to meet our needs in different ways,” Lyons said.
Figuring out the roadblock in front of your goal can help you determine a way around it, whether that means changing your route to work or or preparing for your morning the night before so you feel less rushed.
And if your coffee-grabbing ritual in fact gets you through the work day, then maybe it’s time to set it aside and choose a different resolution that’s worth your focus. You may be able to work toward a goal that makes a bigger impact on your bottom line.
Financial New Year’s Resolutions for 2020
Making New Year’s resolutions is a great way to plan to be better in the new year. Unfortunately, sticking with those resolutions isn’t as easy as setting them. Whatever is on your list for the upcoming year, whether it is to get in shape, spend more time with family and friends, or save more and spend less, setting definable and realistic goals is a key to success.
With the start of a new year just days away, here are some financial New Year’s goals and strategies to help improve your financial wellbeing in 2020.
Create and Stick to aBudget
A good start in setting up your financial New Year’s goals isto create a budget. A detailed budget can help you visualize and understandwhere you are spending your money.
Are you saving enough? Are you living beyondyour means? Once you set up your budget, you will have a better understandingof the lifestyle you can afford and if you need to cut back in some areas.
Abudget will help you determine how much money you need to cover basic expensesand how much is left for saving and discretionary spending. Now that you haveyour budget, stick with it. This may mean making sacrifices in the short-termto keep on track for your long-term financial goals.
Monitor Your Spending
Establishing a budget is a great start and following throughon that budget is key to financial success. Tracking your spending will helpyou stick to your budget and monitor whether your money is going toward yourpriorities. Prioritizing your spending will help you differentiate between theexpenses you need, i.e.
mortgage, groceries, electricity, etc. and items you merelywant. As you track your expenditures, look for ways to cut back where possible.
Can some of your expenses be reduced or cut out altogether? Buying that morningcoffee and eating out for lunch several days per week can get expensive,especially when those costs are added up over several years.
Also, look at the subscription services youcurrently pay for and decide if you are using them enough to justify the costs.Subscription services are all the rage now, and many of us have signed up formonthly services only to use them for a few weeks and forget about them despitestill paying for them every month.
Start/Contribute toan Emergency Fund
Having an Emergency Fund of three to six months of expensesis a great way to protect yourself in the event you are hit with a financialhardship.
Whether it is a job loss or a major unplanned expense a car orhome repair or a medical emergency, your Emergency Fund acts as a safety net tohelp prevent you from going into debt or having to use other assets earmarkedfor other financial goals.
It’s probably not realistic to put away three to sixmonths of expenses in a short time but put aside what you can and build onthat. If you’ve already started an Emergency Fund, great job! Keep at it!
Increase your RetirementSavings
To help ensure a successful retirement, it is prudent to save early and often. Saving at least 10% to 15% of your income for retirement will put you on the right track. Retirement accounts such as 401(k)s and IRAs are great tools to put aside tax deferred funds to grow.
The earlier you start, the better. For example, if you started saving at 25 and saved $6,000 per year for 40 years, assuming a 7% annual return, you would have nearly $1.2 million at age 65.
If you waited until you were 35 and saved $6,000 for 30 years, assuming a 7% annual return, you would have less than $600,000 at age 65. This is a perfect example of the power of compounding interest. If you started saving a little later in life or haven’t started yet, it’s never too late.
At the very least, if you are saving into a 401(k) and your employer matches your contributions, you should always try to contribute enough to get the match.
Establish Short-Termand Long-Term Financial Goals
Whether you are a first-time homebuyer, looking to purchasea vacation home, planning for retirement, or want to help your children orgrandchildren pay for college, establishing short-term and long-term goals is agreat way to plan out how you will ultimately fund those expenses. By setting a definable and attainable goal,you will be able to work out exactly how much money you need to put away everymonth in order to reach that goal.
There is often a negative connotation surrounding the term “debt.”Debt isn’t fundamentally good or bad, and as long as it is used correctly, itcan be a useful tool.
For many of us, debt is necessary to make large purchases a home.
Mortgages and student loans are often referred to as “good debt,”because property tends to increase in value and college tends to increase anindividual’s earning potential.
Credit card debt is considered by many to be “bad debt”because of the high interest rates, the ability to make low payments on the balanceowed, and because credit cards aren’t usually used to buy appreciating assets.On average, credit cards can charge an annual percentage rate between 15%-20%or higher.
Because of the generally high interest rate charged for credit carddebt, it is advisable to limit credit card use and try to pay off balances infull every month to avoid interest charges. If you can’t pay off the balance infull every month, you might be spending too much money on a lifestyle you can’tafford.
If you are holding a monthly balance on your credit cards,develop a plan to pay off that debt. Paying more than the minimum payment amountevery month will help you pay off the debt faster.
Needing to use a credit cardfor an unplanned bill or for emergencies still isn’t the ideal way to meet afinancial need. As mentioned above, building an Emergency Fund can help preventyou from using a credit card should an unforeseen expense arise.
Remember,using a credit card is essentially borrowing money to pay for something, andthe credit card company is charging you to loan you that money.
Pay Attention to yourCredit Score
Your credit score isyour gateway to obtain financing, especially for big ticket items a homeor a new vehicle. Most of us can’t afford to pay cash for our next home, sotaking out a mortgage is the key for many to home ownership.
Your credit scorewill not only have an impact on whether you are able to get financing for ahome or vehicle, but it will also determine the interest rate you will pay thebank to borrow the money. The higher your credit score, the less risk a bankwill see when you go to them for a loan. Many lenders use your FICO score todetermine your credit worthiness.
The FICO model uses your payment history(35%), amounts owed (30%), length of credit history (15%), credit mix (10%) andnew accounts (10%) to calculate your score.
The key here is tofocus on the factors you can control. Your payment history is the main factorthat impacts your credit score. Credit scoring models generally will look atthe payment history of credit card bills, student loans, mortgage loans andvehicle loans, so be sure to pay your bills on time.
The models also put highimportance on your credit utilization rate, which is calculated by comparingyour available credit to how much credit you have used. For example, let’s sayyou have a $1,000 credit limit and currently have a balance of $150. Yourcredit utilization rate is 15% (150/1,000 = .15).
With the rise ofidentity theft in recent years, monitoring your credit score is a good way tomake sure your personal data has not been compromised.
Periodically checkingyour score is a good way to confirm new accounts haven’t been opened in yourname and to help ensure someone isn’t trying to steal your identity. There areseveral places to go to monitor your credit score.
Some credit monitoringwebsites may charge a fee, but many credit card companies now offer free creditscores and monitoring to their customers.
Prepare/Update a Willand Trust
Having a will andtrust are fundamental tools of estate planning. A will is a legal document thatwill coordinate the disposal of an individual’s property or estate after thatperson’s death.
A trust is a legal agreement that goes into effect during theindividual’s lifetime in which the individual transfers ownership of assets tothe trust to be managed by a trustee for the benefit of a beneficiary. If youhaven’t already created a will and trust, doing so can help ensure your estatewill be distributed to heirs according to your wishes.
There can also be estatetax benefits associated with creating a trust. If you already have a will andtrust, it is recommended you review them every five to 10 years to ensure theystill reflect your wishes.
We all make New Year’sresolutions each year. If you plan to make any financial resolutions for 2020,putting down clear and concise goals with a plan of action is a great way tohelp you stay focused and on track to meet those goals.
Insight Wealth Strategies,LLC (IWS) and its affiliates do not provide tax, legal or accounting advice.This material has been prepared for informational purposes only, and is notintended to provide, and should not be relied on for, tax, legal or accountingadvice. You should consult your own tax, legal and accounting advisors beforeengaging in any transaction