2020 was incredibly stressful, and it’s safe to say not many of us were prepared for what was to come. It’s no surprise that in light of the past year, one survey showed that 54 percent of Americans want to better budget their finances this year, while 62 percent want to save more money for future expenses.1 What do you want to change about your spending and saving habits? Let’s see if your resolutions are in sync with these top five for 2021.
Resolution #1: Automate Your Savings
"Pay yourself first," the old saying goes. One surefire way to increase your savings is to automate your finances. You can have your bank transfer a portion of your paycheck into your savings account or, if you haven’t already, sign up for a 401(k) through your employer. Pre-taxed dollars will be automatically transferred into your 401(k) before you receive your paycheck.
Resolution #2: Reduce Monthly Spending
Reducing your monthly spending is integral to increasing your monthly savings. Look at your expenditures and see where you can cut. Keep the things in your life that bring value and joy, but find the areas where you are spending too much on things that just aren't important to you. Maybe you’re guilty of eating out too much or purchasing impulsively online?
If you were forced to cut back on spending in 2020, consider continuing to stick to a tighter budget in the months to come.
Resolution #3: Pay Off Credit Card Debt
Credit card debt is anxiety-inducing, as high-interest rates begin to add up quickly. Not to mention, having too much debt can lower your credit score.
If possible, aim to reduce your credit card debt in 2021. The key to making it happen? See resolutions #1 and #2. Automate transfers to set aside enough money to pay more than the minimum each month. Try to cut your spending where possible. To make sure you’re on your way to a debt-free life, make a debt payoff plan and evaluate continuously to see if you’re reaching your goals. This is something your financial advisor may be able to help establish.
Resolution #4: Build an Emergency Fund
Do you have enough money to cover an unexpected emergency? According to CNBC recent studies have shown close to 60% of Americans could not cover a $1,000 expense out of savings.2 That means solving the problem of unexpected expenses in more expensive ways, such as using high-interest rate credit cards or dipping into retirement savings.
The typical recommendation is to have at least three to six months of necessary living expenses saved in case of an emergency.3 And if 2020 has taught us anything, it is to prepare for the unexpected.
Resolution #5: Spend Money on Experiences
As we have remained socially distanced for much of 2020, many people are making resolutions to spend their money on experiences rather than things once life returns to normal. While many Americans do not currently have the funds for traveling due to the economic downturn and pandemic, if you are financially able, this is a way to catch up on any canceled trips and plans from the past year. It has become more about intentional spending rather than purchasing materialistic items. Let's all hope that 2021 provides us the opportuinty to get out and see the world again.
While many of our 2020 resolutions went out the door once the pandemic hit, that doesn’t mean we can’t plan for a strong 2021. This year has shown us how important it is to be prepared for unexpected events and emergencies, so make this a year about saving and rebuilding your finances with these top five resolutions.
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