The year 2020 presented us with unique challenges. Never has a singular event had such wide-ranging repercussions as the Covid pandemic.
It has touched nearly every area of our lives—schooling, socializing, family gatherings, travel, and more. And the restraints from social distancing and restrictions implemented to slow the spread of Covid remain in place.
Of course, it wasn’t just our daily routines that were impacted. The economy and our investments saw unprecedented swings in 2020.
Yet, we are an optimistic nation. As the economy was set to climb out of a deep hole, investment legend Warren Buffett said, “I remain convinced…nothing can basically stop America. The American miracle, the American magic has always prevailed, and it will do so again.” (1)
Last year’s strong finish for stocks suggests Buffett is on the right track.
As we enter a new year, we tend to look back at our successes, our challenges, and new goals for the upcoming year. Without a doubt, we all faced challenges in 2020. But I believe we can all herald personal victories, too.
I’m convinced most of us are hopeful as we look to 2021. I know I am.
New Year’s resolutions are one tool that offers us guideposts as we begin the cycle anew. Surveys (2) say that more than half of adults make resolutions–yet, we know far fewer keep them.
The top two resolutions center on money and health. My goal is to keep things simple and realistic, focusing on resolutions for your finances.
I’ll offer you options. Some may seem simple, but the foundation of any financial plan must be built on the basics, the fundamentals.
Some may apply to you. Others may not. But I encourage you to grab hold of what is realistic.
7 financial resolutions to get you started in 2021
- Make a budget. You won’t know where your money is going until you track your expenses. You might be surprised how much you spend on various items. You’ll also find ways to reduce some expenditures. That puts and keeps money in your pocket.
Of course, some of us are saving due to the pandemic. We miss restaurants, concerts, movies and sporting events. But what new habits have we learned in 2020 that we can carry over into the new year?
- Establish an emergency fund. Nearly 30% of Americans don’t have savings for an emergency.(3) Start with the stimulus money Congress gifted you, and gradually save until you have at least three months you can set aside in the event of an emergency. Six months is optimal.
- Start or increase saving for retirement. Maybe you don’t think you can afford it. But let’s view this from another angle.
When an unexpected bill comes in, we always seem to find a way to pay for it. If your car breaks down, you know you’ll need to get it repaired. Look at retirement as your car that needs to be fixed.
One easy way is to sign up for automatic drafts into your 401k or IRA. Do you want to save 10% of your income? But does that goal seem out of reach? Then start with baby steps—two or three percent of income will be your starting point.
Then double it in April and increase it by the same amount in July. Continue every three months until you hit your goal. That’s how I began socking funds away for retirement.
- Pay down and pay off debt. You’ve created a budget, but debt continues to weigh on you like an anchor around your neck. You know the feeling.
Put away your credit cards until they are paid off. Pay more than the minimum balance and focus on high-cost debt first. When one card is paid off, put that payment towards your next loan. You’ll be surprised at the headway you’ll make.
And one more thing. When you’ve paid off a loan, reward yourself. Simple rewards are excellent incentives that keep you on track to the top of your summit.
- Keep debt reasonable. If you have all your credit card, student and auto loans paid off, you are ahead of the game. But just because you can borrow doesn’t mean you should.
Keep monthly outflows for your home below 28% of your pretax income and your total monthly debt payments (including credit card, mortgage, auto, and student loans) below 35% of your pretax income. These principles will help keep you on sound financial footing.
- Contribute to a cause near and dear to your heart. Consider incorporating regular financial gifts toward your favorite charity or charities. Can you set up an automatic draft? If so, even a few dollars each month means you will be making a difference. Or, you may choose to volunteer your time.
- Get your affairs in order. Finish setting up a will or trust, update your beneficiaries, update life insurance, and consider a living will. A living will reflects your preferences to close family or friends regarding end-of-life medical treatment. Also, consider a durable power of attorney, which allows someone to make health care decisions for you if you are incapable of doing it yourself.
The seven resolutions are simply guidelines and suggestions. Does it seem overwhelming? Then focus on one or two. Or, implement the ones that apply to you and tackle one per month.
We wish you a happy and prosperous New Year!