2020 was a challenging year to say the least, with the impact of the global pandemic affecting everyone. For many, 2020 was the year they tightened their belts on their finances, with impacts of job loss or reduction of pay.
2021 is a new year, even though COVID is still around, there is light at the end of tunnel with the vaccine due to be rolled out in mid to late February. With the year looking up, it is important for everyone to reset their personal finances and their goals for the year.
Many New Year resolutions involve money, whether its saving money, spending less, or increasing your earnings. Getting your finances together can be daunting task, but it is a vital task, just as important as your health and emotional wellbeing. Poor financial health not only creates the obvious money problems, but can also cause stress, depression, marriage problems and health issues.
We’ve put together a list of steps that will help you take care of your finances in 2021 and get you on track to financial success.
1. Commit to your finances
After such a difficult year, it’s the perfect time to get yourself set on the path to financial success.
Now is the time to commit to your finances and make 2021 the best financial year yet. The first step is always the hardest, but you’ve already started reading this article, so you are on the right track.
2. Set your Goals
Setting your goals is the most important step to achieving financial success. Most financial goals include spending less and saving more. These are perfectly fine goals, but your financial goals need to also include your life goals. You may have goals in mind such as homeownership, starting a new business, or saving for retirement, travelling more, but no actual plans in place to achieve these. It’s time to set identifiable financial goals and put strategies in place to achieve them.
Plan your goals in terms of timing. Sit down with your partner (if applicable), discuss, and write down where you want to be financially in 1 year, 3 years, 5 years, and 10 years’ time. Decide what you want to achieve individually and together and write down a detailed plan of what you want to achieve and when.
3. Record a Budget
Many see the word budget and want to hide away from it, but the idea of budget is not to set strict limits on spending schedule and never spend over the set limit. The purpose of a budget is to simply record what you earn each month, how much you spend and what is left over.
List your fixed expenses that are set each month (rent/mortgage, bills), discretionary costs (travel, eating out) and how much you save each month.
The goal is to have a positive balance after you subtract expenses and savings from income. Then just use this as a guide for your spending. You don’t need to monitor it constantly but look at it once a month and see if you’re on track. Setting it up is the hardest part – once you have a budget, it will make you feel more in control and confident with your finances.
To help you sort your budget, check out our budget planner.
4. Evaluate your bills and expense
After completing your budget, you will be able to see what your daily, weekly, and monthly expenses are. Now you can reevaluate whether these are necessities or desires. Go through your regular bills and expenses with a fine-tooth comb to find any potential ways to save money.
Some of the ways you can cut down your expense are:
Shop around for utility bills – There are many comparative website you can use, that will help you compare you current provider, but ensure to ask your provider for further discounts, they can only say no. Ensure you make use of the government’s Energy Made Easy, which helps you compare all your bills in the one place.
Consider reducing/eliminating regular paid services – Look at the services you pay for each month and determine if the money you’re spending is truly worth it. If not, just drop the service and look for other options that can accomplish the same thing for less.
Shop around for your insurances – Negotiate with your provider to get yourself the best deal. Increased market competition means most health funds are willing to negotiate with their clients. Some health funds have postponed any rate rises for 12 months in response to the COVID-19 pandemic.
Cancel Gym Membership – how often are you using the gym? If you’re using a gym membership less than once a week, you’re likely throwing away money. Why not cancel and look for other alternative to still complete your regular exercise that doesn’t waste money.
Consider changing your mobile plan – Look for ways to downgrade to a cheaper plan mobile plan without the bells and whistles. Even a $10/month savings, for a couple gigabytes less data per month — adds up to $120 a year in your pocket.
5. Plan to pay off your Debts quicker
Paying off your debts quicker will go a long way in helping you reach financial freedom.
Take a step back and review what is tied to you, including your mortgage, credit cards, and other loans. Slowly but surely paying off these debts that have accumulated over the past few months or years is a great way to ensure you are off to a fresh start. Even if it’s saving the change from your lunch today, putting money towards freeing yourself of debt is a positive step in the right direction.
Don’t forget about paying some extra principal toward your mortgage payment each month. By doing so, you’ll cut down on the number of years it will take to pay off your mortgage. However, if you must choose between adding to your retirement nest egg and paying extra on your mortgage, we recommend talking to a financial advisor to determine which option is more suitable for you.
6. Save as much as you can
Saving is much easier if you commit to putting the money aside at the start of your pay period and spending what is left, rather than trying to limit your spending and saving the amount left over.
An automatic deduction, either directly from your pay, or from your bank account a day or two after you get paid, is one of the easiest ways to set yourself up so that you save first. That way, you know exactly how much you have left to spend each pay period.
We generally think saving 10% of your take home income is a good place to start. If you transfer it to another bank it is much less tempting to access throughout the month.
7. Look at ways to increase your income
Whether you have one income or multiple, it’s worth increasing your income to give you more financial security and reach your financial goals quicker.
Here are four ways you can increase your income:
Getting promoted at work – Talk your boss and discuss what specific skills or abilities you need to develop to become a top candidate for any open positions. Then take action to develop the skills needed to become a top candidate they are looking for.
Ask for a raise at work – Schedule a meeting with your boss at an appropriate time to discuss your role and what you bring to the company. You need to be able to demonstrate the facts with tangible information and proof of your achievements. For example, provide copies of positive client, peer and management emails, reports, results, and achievements.
Search for a new job – Another option is to look for a new job with an increased salary or wage.
Start a business – Start by examining your hobbies and skills and come up with a service or product you could sell. It does not have to be much to bring in a little bit of extra money.
Automation will save you time and money. You can automate your bill paying, your income, your investments and your savings.
One of the best ways to start saving and investing more is to automate the deposits into those accounts. Automation makes it easy for you manage your money and it goes hand in hand to helping you stick to a budget. Cutting out paying bills manually and trying to get your money where you want it to go will literally save you hours of time.
2021 brings about a chance to start over, to do this year better than the last.
By just taking a few hours to complete each step on this list, you’ve already become more financially healthy, which will lead to improved overall health, confidence, opportunities and a better life.