This time last year, few people could have predicted all the events that have happened in 2020. From a global pandemic to an economic recession, it’s been one for the history books.
Global events can have real impacts on us individually. Like millions of people across the world, your finances and well-being were likely affected. But as we come to the end of another year, we can look forward to the future with hope. What better time to take stock of your finances and improve your financial confidence?
Whether you could use a fresh financial start or you’re simply looking to set new goals, these financial resolutions can help you get ahead in 2021.
1. Save for emergencies
If you don’t have an emergency fund as a safety net, an unexpected expense or loss of income can be devastating, as many of us learned in 2020. Even having just $1,000 stowed away for when you need it can provide a lot of mental relief. Create short-term savings goals and practice saving every week or month. Put it in a separate account, and soon enough, you’ll see you’re making progress. For a longer-term goal, try having at least three months’ worth of living expenses.
Make saving even easier by automatically paying yourself first via direct deposit or automatic transfer. And if you saved money this year from not taking a planned trip or not commuting to work, this is a good opportunity to put some of that money into an emergency savings fund. Every little bit helps.
2. Create a values-based budget
Has this year changed your spending habits? Maybe you’ve found new hobbies like cooking or working out at home, and you want to do more of that in the coming year. Good news: you can afford to do the things you enjoy as long as you budget for them. Take a good look at your spending habits to determine where your money is going. Then, use those insights to create your new 2021 budget that both prioritizes your financial goals and reflects your priorities and personal values.
3. Pay down debt and raise your credit score
One in five Americans overspend on their credit cards.1 Some debt is considered “good debt,” like student loans or mortgages, but you should work to pay off consumer debt, like credit card debt, as soon as possible. Paying off outstanding balances is one of the .
If you’re managing multiple debts, consider different approaches you can take to pay them down, like the “snowball” or “avalanche” methods. And while the holidays might be the season of giving, it’s important to create a plan for buying gifts that doesn’t involve going over what you can afford.
4. Ensure you’re protecting what matters
If 2020 has taught us anything, it’s that we should be prepared for the unexpected. There are many ways to do this. Gain a basic understanding of the fundamental types of insurance, and look for an agent with Chartered Property Casualty Underwriter (to get appropriate insurance coverage for you and your family’s needs.
Meet with an experienced lawyer or estate planning attorney to prepare or update your will so you can make sure your loved ones are cared for after you’re gone. Finally, do a password checkup on your devices and make sure your personal data is protected.
5. Invest in your retirement
Less than half of Americans who are not yet retired feel strongly that they are making enough progress saving for retirement.2 For the new year, check your retirement accounts and investments. Or, if you aren’t already investing in your retirement, look into options like opening an IRA or starting a 401(k) with your employer. If it’s available to you, taking full advantage of employer matching on your 401(k) can have a dramatic impact over time.
It’s recommended to put at least 10% of your pre-tax income in your retirement savings — or more if you can afford it or need to catch up.
6. Handle your housing expenses
2021 may be a good year to purchase a home due to interest rates being near historic lows, but if you’re a first-time homebuyer, be sure you have the basics covered first. Consider renting still if you don’t have at least a 5% down payment and a credit score over 700, or if you aren’t likely to live in the home for at least five years. Or, if you own a home already, consider refinancing your mortgage to take advantage of low interest rates.
No matter if you own or rent, it’s recommend to spend no more than 30% of your income on your total housing costs.
7. Take steps to increase your income
Whether you’re currently looking for a job or are fortunate enough to have stayed employed throughout the pandemic, increasing your income is another way to improve your financial confidence and well-being. You can increase your income potential by developing your skills, seeking support services, and networking with a focus on professional relationships.
Career advancement isn’t only about negotiating a higher salary, though. While not everyone can score the job of their dreams, you can still prioritize your own happiness by aligning your career choices — like what you do or who you work for — with your personal values.
8. Remember to give back when you can
There are so many — it makes you feel good, for one. In the new year, make giving back one of your goals. Whether it’s a charitable donation or sharing your time, talents, and resources to make the world a better place, there are plenty of ways to keep the holiday spirit alive year-round. Ask a friend or family member to get involved and help keep you accountable.
9. Bonus: Take care of your mental well-being
2020 was an undoubtedly tough year. It may have taken a toll on many aspects of life, including mental health. Before and after the New Year, take some time to rest and recharge. Consider talking to a therapist if one is available to you, or video chat with a friend or family member you trust.
While resetting will look different for everyone, following some or all of these financial and well-being tips may give you more financial confidence and less worries. The more you do, the more financial confidence you may gain, and the less you may have to worry about. Even focusing on just one or two of these financial resolutions for 2021 can help you stress less.
2 Q2 2020 Truist National Financial Confidence Poll
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