Financial New Year’s Resolutions: 5 Tips for 2021
When do you begin your journey to financial independence? New Year’s is a great time to start since the year is fresh and resolutions are traditional. What are your financial New Year’s resolutions? To save more? Become debt-free? Make sure you can cover an emergency? These can all be achievable goals, but you need a plan. Here are some tips to help keep your personal finances on track in 2021.
Start with a Budget
Creating a budget can help you get and stay organized. Use a money management program such as Mint or Simplifi to track your income and spending. Your spending habits might end up surprising you! You will soon realize the non-essentials that you can cut out, like the membership to the gym that you quit using or the magazines set for auto-renewal that you never read.
Be sure to earmark the money in your budget for funding your other resolutions, like reducing debt and saving more for retirement.
Pay Off Debt
Speaking of debt, it can really derail your saving goals. You can assess your debt picture by ordering a credit report on annualcreditreport.com. Usually, you are entitled to one free credit report each year from Equifax, Experian, and TransUnion. But because of COVID-19, you can order a free weekly online report through April 2021.
Check your credit reports for any irregularities (such as potential identity theft) that can sink your credit score. Then review your loans and other debt, and come up with a plan to pay them down.
We generally advise starting with the highest interest rate, such as credit card debt. Increase your payments as much as feasible so that you can pay off the credit card quickly and move on to the next credit card or loan.
Create an Emergency Fund
Emergencies are, unfortunately, a part of life. Your house may spring a leak, and suddenly you have to pay for a new roof. A loved one is diagnosed with a critical illness; another family member gets laid off. Though we can’t predict such events, we can take steps to prepare for them, and one of those steps is an emergency fund.
Don’t let emergencies erode your financial—and mental—well-being. Save six months’ worth of expenses in an emergency fund to get you through those unexpected times.
Focus on Retirement Savings
No matter what your age, you should be saving for retirement. The younger you start, the more time your retirement accounts have to compound.
If you have a company plan such as a 401(k) with matching contributions, consider contributing at least enough to get the full match. Then make it a goal to increase your contributions each year, especially when you get a raise. If you are able, contribute the maximum allowed. For example, you can save $19,500 into your 401(k) in 2021, plus an extra $6,500 if you are 50 or older.
If you have a traditional IRA or Roth IRA, you can generally save $6,000 in 2021, or $7,000 for those 50 or older. Make sure you understand the rules for tax deductions and income limitations.
Assess Your Investment Accounts
Make it a point to review your investment accounts (like a brokerage account) at least annually. The year's start is a great time to do that review since you will be receiving year-end statements from investment custodians.
Are your investments on track for achieving your goals? Is your investment portfolio still properly diversified? Does your asset allocation match your ideal allocation, or do you need to rebalance? When the markets dropped early in 2020 because of the COVID-19 pandemic, did you panic and sell? If so, it may be time to review your risk tolerance.
If you are unsure about your answers to these questions, consider talking with a financial advisor who provides investment management. We recommend working with a fee-only, fiduciary financial advisor so you can be confident that the advice you receive is in your best interest.
Final Thoughts
Life can offer plenty of distractions and ways to spend your money. If you feel your interest in your financial resolutions flagging this year, then just imagine how good it will feel in December to look at your steadily growing savings accounts. Let that vision be the motivation to keep you moving forward. We wish you a successful and prosperous 2021.
Schedule a complimentary, 15-minute call with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country's leading professional association of fee-only financial advisors.