How to do financial planning in the New Year 2021 and keep resolutions
Finally, we have entered into the New Year. Let’s hope this year brings a lot of happiness to our lives. So, it’s time for us to do proper financial planning to lead a financially stable life ahead.
How to do financial planning in the New Year 2021
Here are some of the best possible ways to do proper financial planning and stay financially healthy in 2021. Let’s start one by one.
1. Review and stick to a budget
If you're the one paying all the household bills in a month, sticking to a budget is a must-do job for the coming year. A budget can help you manage your expenses. It ensures that you don’t end up splurging and thereby, you can save a decent amount every month.
Hopefully, you are following your budget without any fail. But the fact is, life changes with time and so are expenses. So, based on the circumstances, you will have to review your budget accordingly. If you still follow your old budget, it may not work.
If required, you can cut down certain unnecessary expenses like cable subscriptions, gym memberships, dining out, etc; or, you can look for other budgeting strategies too.
However, only chalking out a budget won’t work. You will have to make sure that you are sticking to it, no matter what! By doing so, you will be able to keep your finances on track and expect a financially stable life ahead.
Read: Budget - 4 Types of budgeting strategies and how to plan a simple one
2. Eat out less
Eating out is one of the major expenses of the people in our country. A recent USA Today report has revealed that the average food spending is about 10% of the household income every month.
So, if you frequently eat at lavish restaurants with your family, then you should control your spending.
If your kids get bored eating the same dish, then try to get new recipes to change their taste. You can get a variety of recipes from websites. Search online, get your kid’s favorite recipes, and give it a shot. Try at least one new recipe every week to serve a new palate for your family.
Read: The frugal kitchen: Eat healthy and save money
3. Using your credit cards wisely
Using credit cards is one of the easy ways to maintain a decent credit score. But it can happen if you use your credit cards responsibly. Otherwise, you may end up splurging, and thereby, you may rack up credit card debt. Trust me, if you keep on incurring credit card debts, no amount of budgeting efforts will help you out.
So, try to charge your credit cards for amounts that you can afford to repay. Besides, always pay off your credit card outstanding bills in full and within the due date. By doing so, you won’t have to shell out money on interest payments and you can maintain a decent credit score, too.
4. Boost your income
Try to increase your income level to stay more financially secured. If your workplace will pay for overtime, then don't miss the chance to earn some extra money. Thus you can catch your boss's attention too. Who knows, you can get a promotion in the coming year, which can help you financially too.
Else, you can look for some side gigs online that can help you to earn some extra bucks. I would suggest you opt for a part-time job that fulfills your passion. Thereby, you will enjoy your side gig and earn a few extra dollars too!
Read: You want to tackle a side gig? Here's how to do it!
5. Plan a suitable debt payment strategy
Now it's time to take action; make a resolution to get out of debt in the coming years. You may not be able to get out of it fully, but taking one step may make a big difference in the future. If you search, you will come across various debt relief options and choose according to your debt amounts and financial situation. You should be very careful while choosing a debt relief option. Otherwise, you might rack up more debt or it may take more time than usual to get rid of debts.
So, I would suggest you consult a genuine debt relief company. They will have a team of expert debt consultants who will review your debt amounts and financial situation. Based on that, they will suggest an apt debt relief plan.
6. Teach your kids about the value of money
Maybe your kids are too young to understand the value of money. But, it is also true that there is no minimum age to learn the value of money. Try to give them lessons on money according to their grasping power.
For example, if your kids ask you for a pricey gift, tell them how it is a waste of money and other gifts are also fun.
Read: 5 Money skill-building experiences your children should go through
7. Contribute to your retirement account
Everyone wants to relax in their golden years. But for that, you need to have a decent amount of nest egg as you are likely going to have a fixed income after retirement.
Financial experts say that one should start saving for golden years right from the day of receiving his or her first paycheck. So, if you have not started saving for your retirement yet, you should start doing it asap!
If your employer offers a 401k, you should grab the opportunity immediately and save for your golden years. If not, you can opt for an IRA (Individual Retirement Account) to save for your golden years.
Read: How to plan a perfect retirement
8. Open a high-yield savings account
Is your savings account at the same bank where you are having your checking account? If so, you are not alone. Most people in our country do that so that they can transfer funds between the two accounts easily and quickly.
But I would suggest you opt for a high-yield account usually offered by online banks like Ally Bank, Charles Schwab, etc. They offer a comparatively better annual percentage yield (APY) than the national average of standard savings.
According to a December 2020 Federal Deposit Insurance Corporation (FDIC) report, the national average interest rate on savings accounts is around 0.05%; whereas, online banks like Ally Bank and Charles Schwab offer annual percentage yield (APY) of around 0.60% and 0.40% respectively.
So, if you opt for a high-yield savings account, you can earn more money as interest.
9. Stay calm and stick to your plans
Believe it or not, the financial market follows its own rules. Market trends change throughout the year. At one moment, you can see that the market is performing really well. At some other time, you may see that the market is going through a lull period. However, nothing stays forever.
So, the market condition will change soon. Don't make snap decisions when you see a bull or bear market. Stick to your original financial plan, save funds in your retirement accounts, and make wise investments. Stay financially disciplined irrespective of the behavior of the market.
10. Refinance if you qualify for a lower rate
If you wish to refinance your existing home loan at a favorable interest rate, you should have a good credit score. Otherwise, you may not refinance your loan to a preferable interest rate.
The lender will check your credit score along with other factors like DTI (debt-to-income) ratio to determine your eligibility. For example, for refinancing a conventional loan mortgage, you will need a minimum credit score of around 620 to 720. Whereas, for refinancing an FHA loan, the minimum credit score required is about 500 to 580.
So, try to avoid taking any step that may affect your score in a negative way when you want to refinance. If you are already having a low credit score, you can learn the 6 most effective strategies to achieve an 800+ credit score and then apply for refinancing.
11. Switch to autopay
Late payment is one of the major reasons behind racking up debts. Once you miss a payment, you start accumulating outstanding debts. Also, a late payment reported to the major credit bureaus can hit your credit score majorly.
So, in 2021, you must take care of your monthly obligations first before indulging in luxury expenses. This way you can be able to stay away from the clutches of debt.
If you often forget monthly bill payment dates, then I would recommend you set up autopay for making monthly bill payments. This way, you can pay each monthly bill without taking extra stress and stay away from shelling out money on late fees and penalties.
12. Build up a financial cushion
Ignoring a savings or rainy day fund may put you at the risk of a financial disaster at the time of unexpected unemployment due to recession or medical emergencies.
You must keep a financial cushion to support any financial need. Life insurance, medical coverage, emergency funds, retirement savings are all financial securities in different forms. You should have all these to protect your financial future. Otherwise, you have to pay the sky-high bills of medical treatment or retire with very nominal savings in your account.
13. Get your free credit report and go through it
You can get a free copy of your credit report once a year by visiting AnnualCreditReport.com. Moreover, from 2020, you can get 6 free credit reports per year through 2026 by calling 1-866-349-5191 or by visiting the website of Equifax.
So, have a look at the copy of your credit report, and figure out if there is any misleading information on it. An FTC study shows that almost 1 in 5 people in our country have errors in their credit reports.
If you notice any error, dispute it to the credit bureaus via phone or letters, or online. The credit bureaus will get in touch with your creditors and investigate the matter. If there is any legitimate error, it will be resolved within 45 days.
So, you need to keep a tab on your credit report as errors on it can bring down your credit score.
Besides, it helps you to check whether or not you have become a victim of identity theft. So, this year, make sure you don't neglect your credit report and stay top of your credit!
How to keep resolutions for a better financial future
Christmas fun is over and we have recently stepped into the New Year. It's the right time to make some resolutions to make some positive changes in the coming year. But weight loss and meditations are very stereotyped resolutions. So, this time, try to make some useful and productive resolutions to bring positive changes in your life.
Making a long list of resolutions doesn't make sense when you can’t keep them throughout the year. Keeping financial resolution has a purpose to improve your personal finance prospects. If you fail to keep the resolutions, then you'll not see the desired result. So, here are some of the best possible tips to keep your New Year financial resolutions. Here you go.
1. Pay yourself first
Gone are the days when you used to save the remaining dollars (if any) at the end of the month. To keep your financial resolutions, you will have to pay yourself first and save money.
So, you can opt for automatic transfer of funds from your checking account to a savings account, especially a high-yielding one. I would recommend you to set up the date of automatic transfers on your payday. Thereby, you will automatically pay yourself first without using your money for other expenses.
2. Choose realistic financial resolutions
Well, choosing realistic financial resolutions will help you to accomplish them. Otherwise, it can make you take unnecessary risks and it can take a toll on your financial well being. Also, you might feel demotivated as an unrealistic financial resolution may become impossible to keep.
So, my suggestion would be to set some financial goals that are realistic to accomplish.
3. Break your big resolutions into smaller chunks
You may have set big financial resolutions like paying off debts, saving for the down payment of buying a house, etc. But let me tell you, all these resolutions are likely going to take time to accomplish.
So, you can break these big goals into smaller, achievable parts. For example, you can try to repay your high-interest debts first as it can help you to save money in the long run.
Once you repay one debt, don’t forget to pat on your back and reward yourself with a small treat. It will help you to keep your morale high while keeping resolutions in this year ahead.
Things to keep in mind during this pandemic situation
This year has been a disastrous one due to this COVID-19 pandemic. Many people lost their jobs or received pay cuts and eventually, they have been struggling financially.
So, let’s just hope that everything becomes fine in 2021 and we can start afresh. Here are some tips that you should be aware of while planning your finances in 2021, considering this COVID-19 pandemic.
1. Build a good amount of emergency funds
The pandemic has shown how important it is to have an emergency fund. If you are having an emergency fund, handling a difficult situation becomes easier.
That’s why financial experts suggest having an emergency fund consisting of your expenses of at least 5 to 6 months. It will help you to deal with any unexpected emergencies like this pandemic. If possible, try to stash more funds to your emergency fund.
Because we really don’t know what the future has stored for us. So, it’s better to remain prepared at least financially, to face any emergency.
2. Keep a track of your retirement savings
Enjoying life during the golden years is a dream for all. And for that, a decent amount of nest egg is necessary. But if you have withdrawn funds from 401k during this pandemic, you should repay it at the earliest possible. Otherwise, it can hurt your retirement savings.
I would suggest maxing out your 401k in 2021. You can contribute a maximum of $19,500 to 401k in 2021. And if you are 50 and above, you can make a catch-up contribution of $6,500.
3. Seek professional help
Have you racked up debts during this pandemic? Are you shelling out a substantial amount of money for making payments? If so, you need to try to get rid of debts at the earliest.
If you have unsecured debts to pay off, you can opt for a debt management plan (DMP) offered by a reputable debt relief company. The financial experts of the company will negotiate with your creditors to set up a repayment plan and reduce interest rates. Once your creditors agree, you can repay your unsecured debts through single monthly payments.
There are so many things we can do for our betterment. But there is a difference between thinking and implementation. Don't just think to save money. Start today with your resolutions to spend a smart yet less stressful financial year.
Maybe you can implement some of the points that we have discussed here. That's fine! Start slowly and gradually move to a more successful financial year than the present.
Have a prosperous year ahead!