Expert recommendations to make this your best year ever (at least financially)
Is 2021 a good year for making economic resolutions? It depends on who you ask. Jim Wang, founder of WalletHacks, notes that 2020 was a rough fiscal year for many of us – meaning you may not be ready to think about rebuilding your emergency fund, increasing the amount of money you add to repaying credit card debt, or putting in some big financials. goal. "If the thought of making an economic resolution for 2021 fills you with fear, skip it this year."
Jerry Zeigler, Accredited Financial Counselor® (AFC), owner of JZ Financial Management and a member of the Better Financial Counseling Network, takes the opposite approach. “Nothing about the existence of a pandemic and 2020 will change what your financial resolutions and goals should be. The principles of good personal finances have not changed. What matters is where you are financially and where you want to be.
So – where are you financially, where do you want to be and what do you need to do to get there? If you lost your job due to the COVID-19 pandemic or spent your emergency savings during quarantine, making more money for the coming year may be your top priority. (In that case, you should check out our guide to COVID-friendly side-adjustments.) If you were among the lucky percentage of Americans who were able to increase their savings in 2020 thanks to reduced costs for everything from work lunches to family vacations, what should you do with your extras money?
We asked four personal finance experts what types of financial resolutions people should consider for 2021 – especially since next year will probably be unparalleled like this. If you're thinking about what you want to do with your 2021 finances feel too complicated and / or stressful, you can always take Jim Wang's advice and skip the resolutions this time. On the other hand, you can set some thoughtful, achievable financial goals to help you alleviate some of your money-related stress – so let's see what financial advice the experts recommend for your New Year's financial decision.
In this article:
Check your financial situation
Before you start making 2021 economic resolutions, take a look at how 2020 affected your economy. Did you spend more money on a credit card than you expected, or did you get some extra money in your bank account? The answer can affect the types of goals you set for the coming year.
"I would recommend people to approach 2021 resolutions based on how they went in 2020, the holes they discovered in their plans for the year and the vision they have for the future," explains Patricia Stallworth, CERTIFIED FINANCIAL PLANNER, Founder by PS Worth and hosts the Minding Your Money Minute podcast. "Those who did not do well are likely to see the need to introduce more emergency-related alternatives – emergency funds, reduce spending and ensure that the whole family works together – while those who did well can focus on creating forward-looking alternatives such as growing their business, developing their careers, build wealth, help others, etc.
Steffa Mantilla, certified financial education instructor and founder of Money Tamer, suggests that you not only ask yourself how you did in 2020, but also how 2021 can change your financial situation. “One important thing people should ask themselves is how safe they think their job is. Is their industry one that will shrink as things continue, or is it relatively stable regardless? The answer to this will help determine how to manage your finances in the coming year. "
" The principles of good personal finances have not changed. What matters is where you are financially and where you want to be. ”
—Jerry Ziegler, Accredited Financial Counselor®
Keep Your Resolutions Simple
As 2021 is likely to be a year of both uncertainty and change – a potential COVID-19 vaccine, a new administration, the ongoing the fight for race and social justice – it may be a good idea to keep your 2021 economic resolutions simple.
"It might save $ 400 to an emergency fund or download a budgeting app to learn where your money is going," says Wang. "Just like making your bed in the morning a small but symbolic gain, a simple resolution is a small but symbolic gain that will help 2021 start right."
If you want to make a simple New Year's financial resolution for 2021 but do not know where to start with your budgeting goals, Zeigler suggests that you focus on one of the most important components of financial security: save more, spend less and / or pay off debt . "Having an adequate emergency fund, reducing or eliminating debt and controlling spending are often still the best places to look when choosing financial goals."
Once you have assessed your financial health and chosen a potential savings goal, see if you can divide it into a simple, achievable financial plan. You might want to take Wang's advice and save $ 400 in an emergency fund, for example. That's a good number to start with, because it's the amount of money the Federal Reserve deems necessary to cover a small unexpected expense – and in May 2020, the Federal Reserve's annual report on the economic well-being of U.S. households revealed that only 63 percent of U.S. households had enough with extra money to cover an emergency of $ 400.
To save $ 400 in 2021, you must set aside $ 7.70 per week. If it sounds achievable, good – and if saving $ 7.70 a week is the only financial solution you want to do this year, that's all you need to do. "Resolutions are personal and should reflect your circumstances and values," explains Stallworth, "and they only work if you create a plan that you follow and implement."
If your finances need help, focus on your emergency fund
] What should you do if you are still recovering financially from 2020 – or are worried about what might happen to your finances in 2021? All of our four financial experts stressed the importance of an emergency fund, especially at a time when illness, job loss, and financial change can affect your monthly income and financial resources. If you are only deciding on a financial resolution for 2021, see if you can set aside some extra money for emergencies.
"If you do not have an emergency fund, it is important to build a three-month fund," explains Mantilla. . "Ideally, it is safer to have a six-month emergency fund because the pandemic will make the job hunt take longer."
What does it mean to have a three-month emergency fund, and how is it different from setting aside $ 400 for an unexpected expense? "Your emergency fund should be based on your bare-bones budget to survive each month," says Mantilla – which means it's probably a good idea to ask yourself how much money you and your family need to get from each month. How much would it cost to pay the bills, keep everyone fed, get to and from work and so on, once you have reduced extra costs like streaming media services?
Multiply that number by three and you will receive your emergency fund's target amount. Divide that number by 52 and you get the amount of money you need to set aside each week to reach your goal.
If your finances are doing well, give back to your community
If you already have your emergency fund in place, you may want to consider other financial goals such as increasing your student loan payments or refinancing your mortgage. You may also want to consider Patricia Stallworth's advice and establish at least one financial resolution that involves giving back to your community.
You can start small – literally – by supporting small businesses. "Many small businesses have to close their places," says Mantilla. One solution is to protect them for all your needs. Order takeout or buy gifts from them to keep them in business. Most stores have made it easy to order online and have contactless pickup.
If you want to expand your philanthropy, consider switching your annual charity donations to monthly donations. Charities and non-profit organizations need your annual support, but monthly donations enable organizations to plan ahead and use donor money more strategically. If you do not know where to donate, use our charity guide to get started.
You may also want to use your resources to reduce the gap between races. This can be as simple as supporting black-owned companies or as complicated as using strategies to invest in investments to invest for racial justice.
Think of it this way: If you have sufficient financial stability to cover emergency expenses, survive a period of unemployment, and navigate the unexpected twists and turns that 2021 may bring, it's time to ask yourself what you can afford to give to others. When you share your resources with people who are still building their benefits, everyone benefits – and because generational wealth associations, your gift can have an impact that lasts well beyond the next calendar year.
If you are still not sure what kind of financial resolution for 2021, start by asking yourself Jerry Zeigler's three questions: Where are you financially, where do you want to be and what do you need to do to get there? Then make a simple, achievable plan that will help you get closer to your financial goals. If next year turns out to be as unmatched as this, you can always change or adjust your financial priorities – and if you do not want to set any financial resolutions for 2021, then that's okay.
always a good idea to solve to set aside some extra money for unexpected expenses. After the past year, we all know how important it is to be prepared for the unexpected.
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