2020 has been a year where we have watched millions become even more financially unstable through layoffs and entering unemployment with the COVID-19 pandemic. Even before the pandemic, there was upwards of 75% of Americans living paycheck to paycheck; meaning if they miss one paycheck, they’ll be in deeper financial trouble. Whether you were in this boat before, now, or lucky to be one that is not, here are 7 things you need to be doing, financially, in 2021.
If you don’t already set goals that you want to achieve financially, you really should be. These goals could be anything from paying down debt, getting a better handle on your finances, or saving for a new purchase. You need to be setting short term goals and long term goals so opportunities don’t pass you by; and they need to be written somewhere! Having it as a written goal brings it to life. Making charts or having it in front of you can help motivate you on your progress.
Your cashflow is when, and how much, money is moving in and out of your accounts. The biggest reason for incurring bank fees is because you’re not managing your cash flow and you over-drafted on your account. Say you have $200 in your checking account today, and in 5 days you know you’re getting a $500 paycheck, though in the month you know you can spend that money however your cashflow says you have to wait. Another example would be that you have the same $200 in your account but you send a $100 check to pay bills. Your account still says $200, but you really only have $100 to spend. This boils down to not spending money before you have it and don’t spend the money in your account that has already been spent. Bank fees can really eat into your goals and budget if you’re not careful.
Do you ever get to the end of the month and wonder where all your money went? You bring in a paycheck, but where does it go? why are you always living paycheck to paycheck or never have money to buy something? These can be solved by managing your money and telling it where to go rather than wondering where it went. A budget is you giving yourself permission to spend and where; every dollar needs a job. However, going over budget is not maintainable and your budget sets off the red flags on when your behaviour has to change. Every month is different so you will need to reassess and update your budget at the start and sometimes throughout the month.
If we learned anything from the year 2020 is that the world is unpredictable when disaster can strike. Who would’ve guessed that the United States would have gone from sub 4% unemployment to over 15% in just a couple of months. A majority of Americans also cannot cover a measly $1,000 emergency if one happened. Make this your year to save up an emergency fund of $1,000 or 3-6 months of expenses. Don’t get caught having to go into more debt, which will cost you even more, when an emergency arises. This also gives you such peace of mind and needs to be looked at as an insurance policy rather than a savings or investment.
Having debt is like living life with chains around your legs or carrying a heavy rock; it’s exhausting and steals your energy and ability to live life. Image not having that $300 a month auto payment or incurring that 20%+ interest on credit cards, you would have that much more money to save and invest into your future. Debt is a drain as the interest costs you more than it was worth, whereas investing that money makes you even more as it grows. This year you should make it a top priority to pay off your debts so you can start saving and growing your wealth.
A common myth we share is that retirement is an age, 59 1/2 to 65+. This is not true! Retirement is a number; more precisely, an amount of money saved such that you could replace your current income when you stop working. If you make $50k a year and plan to live 20 years after retirement, you need to have 1 million dollars saved. If you don’t have that much saved when you want to retire, you either can’t or will run out of money close to the end of your life. The best way to reach your retirement goals is to save as much as you can early on. Years invested will earn you the most money whereas in your later years you need to save more of your earnings. Some big regrets from those in their 30’s and 40’s (and up) are that they didn’t start saving earlier. This is where not incurring so much debt when you’re young is smart too as it will allow you to save more of your income.
Lastly, as you’re taking charge of your finances, you want to make sure you’re using tools to help track your spending, goals, and balances. This could be envelopes for budgeting, a registry for tracking transactions, or even better would be computer programs such as Mint.com or Quicken. You want to make sure you’re setting yourself up for success and end 2021 even better than you ended 2020.
Not sure where to start or just getting frustrated with all the work that needs to be done? Contact Us today and schedule a coaching call. We can help you get your finances in order and help relieve your financial stress.