Get Your Finances In Shape For 2021 With These New Year’s Financial Resolutions

This year has given everyone a crash course on the necessity to be equipped for unprecedented times. The Covid-19 outbreak that resulted in lockdowns, has added to the financial woes of most of us. With 2021 around the corner, you can turn a new leaf. A new year brings conviction and hopes to bring about changes especially when it comes to finances – so start planning and drafting now to improve your financial health in the future. New Year resolutions always seem easy to make but are difficult to stick to. But when it’s about your money, you need to get serious. You may have gotten through this year, but there may be other unforeseen circumstances that you need to be ready for.

So, here are some financial resolutions you should make to become financially stable in the coming year:

Clear Debts

 Becoming debt-free is a top motivator for people while creating financial resolutions. Clearing all your debts may sound difficult, but you can get there if you are committed to it. Contribute whatever you can and keep chipping away at your debt. Also, remember, the longer you take to clear your debts, the more you’ll spend on interest. It may or may not be possible to become debt-free in a year depending on your current financial position but planning and progressing towards a debt-free life should be on top of your mind this New Year. Do the calculations and figure out an amount you can afford to put towards your debt every month. Use this calculation and develop a goal for paying down your debt. And obviously, you must pay down the debt with the highest interest rate first. Re-look at your credit card debts, borrowed money, and loans, and devise a monthly plan to pay it all off. Once this burden is off, you can focus a lot better on achieving larger goals. Also, if you are looking forward to having a debt-free life, the next resolution can help you get closer to it.

Make a Realistic Budget

The most common financial resolution for every New Years’ has been to ‘save more and spend less’. It can be called the secret to financial success. However, merely saving more and spending less is a near-impossible task without help. This is where a budget comes into play. A detailed budget is considered the most valuable tool for managing your finances. You need to start with making a realistic budget and following it proactively to track your expenses and this will help you make financial progress. Apps like ‘Hop’ help you in understanding and tracking your expenses by categorizing them. This helps you in knowing where your money goes. While making your budget, don’t forget that the cost of living increases every year. So while reviewing your annual budget, make sure to allow for inflation. This way you’ll be able to absorb any shocks if the prices of your groceries, utilities, or other expenses go up.

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Add to Emergency Fund

Another admirable financial resolution for this New Year could be starting or growing your emergency funds. Emergency funds are readily available sources of assets that help people in navigating financial dilemmas like loss of a job, illness, a major home or car repair, etc. It should contain enough money to cover at least 3-6 months’ worth of expenses.. The purpose of an emergency fund is to improve financial security by producing a safety net of highly liquid assets, cash, or other assets that can be used to meet emergency expenses. The challenge with emergency funds is that it requires a lot of money! That is why it’s recommended that you set a target of how many months of an emergency fund you want and start saving right away! You can start as small as 2 months and keep adding on months as you reach the previously set goal.

Save for Retirement

Next, you may wish to save for retirement. Saving for retirement can take many forms, but one of the easiest could be a 401(k). Apart from saving for retirement, you can also start to contribute to your 401(k). If you aren’t already doing so, check with your employer and find out if they allow 401k contributions. This will not only save for your retirement but also lower your taxes. Perhaps in the New Year, you can start contributing 15-20% of your salary to your 401(k). You can boost this percentage of salary from year to year and increase your retirement savings. Additionally, if you get a lump sum amount as a bonus, it can be another excellent opportunity for boosting your retirement savings rate. In addition to your 401(k), you can also explore other opportunities to increase savings in other tax-deferred retirement accounts like IRA and others.

Design a Good Portfolio

If you aren’t investing already, now is the time to start building a portfolio (Check out our video series on YouTube on ‘Savings & Investments’ to start your investment journey). And if you’re well-versed with investing, it’s time to start making it more rewarding. A portfolio that’s well diversified across asset classes is a balanced portfolio. You have to look after your investments if you want them to make you money. Look into your investments and identify which ones are doing well. Improve your portfolio by eliminating fledgling investments and adding new and well-researched ones. Also, try to spread your investments across various asset classes as it reduces the risk and loss incurred because of market volatility.

Boost Income

Money. Who doesn’t want a little more of it?
Another financial resolution for 2021 could be trying to increase your income. You can increase your income in many ways, we have listed some for you:
Start a Side Hustle – A side hustle is a good way to earn a few extra bucks. Side hustles can be both creatively fulfilling as well as financially rewarding
Build Passive Income – You can earn a passive income from the dividend from stocks, interest from bonds, real estate, etc.

Increase Credit Score

Next on your list should be increasing your credit score. Whether you want to purchase a car, buy a house or a credit card, rent an apartment, your credit score matters the most. While it can be hard to predict the exact move you need to make to increase your credit score, the steps to raise it are relatively simple. Check out our post on How to Improve Your Credit Score to get started.

Read Personal Finance Books

Use this year to increase your financial knowledge. Whether you are interested in investing, paying off your debt, or saving there are many great books that can help you increase your financial knowledge. Find out a few ‘must-reads’ from this post on 5 Books you probably should have already read to be a successful entrepreneur. These books will permanently shift your financial mindset and will have an unquantifiable significant impact on your finances.
Reading can be one the best possible ways to increase your financial knowledge and take a step towards financial freedom.

Think Beyond 2021

If you succeed in your well-crafted financial plan for 2021, you will come out of this year a winner. After this, you need to focus on what lies ahead. Making a pecuniary master plan will guide your ship for more than just a year. Analyse potential expenses, life goals, retirement plans, and future investments. This will put you on the right track towards where you see yourself in a few decades. You should potentially also account for job changes, pay raises, personal developments like getting married and child expenses, car and home purchases. One might want to include indulgences like luxury purchases, fine living, travel etc. Also, leave a little room for exigencies and be flexible and honest with yourself.

Conclusion

Always remember you do not have to do all of it at once. There is a lot you can do to better your financial health. So, take one step at a time and make some real progress on your journey to financial freedom this year.