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Hindsight is 2020: 7 Ways We Should All Vow to Treat Our Money Differently in 2021 Thumbnail

Hindsight is 2020: 7 Ways We Should All Vow to Treat Our Money Differently in 2021

Daniel Goott, CFP, CIMA - Principal

2020 is a year most of us would prefer to forget. When the year started, nobody expected natural disasters of historic proportion, the COVID-19 pandemic, or the residual economic hardships that followed. But with the first year of the new decade officially behind us, how can you better prepare your finances for whatever 2021 may bring? Our seven suggestions are listed below.

Vow #1: Establish an Emergency Fund

If 2020 taught us anything, it’s the importance of preparing for the unexpected. Establishing an emergency fund is crucial when it comes to being financially ready for medical emergencies, house repairs, car maintenance, etc.

Money tucked away in an emergency fund is meant to help cover the costs that are not part of your normal monthly expenses. Without an emergency fund, any unexpected event, even a small one, could set you back significantly. While you may not be able to put the same amount away every month, every little bit helps, and it’s important to put aside what you can.

Vow #2: Save More Money

You’ve heard the phrase, “Every little bit counts,” all your life – but it couldn’t be more true. If you enjoy grabbing a coffee before work, start making a pot at home. If you go out to eat twice a week, cut down to once a week or every other week. Many of us are continuing to work from home, which cuts down on the need to buy as many clothes for work, which is another way to save.

While it’s an adjustment, these small “sacrifices” can yield significant results over time. Say you skip eating out one day a week, saving you around $20 on average. In the span of a year, that $20 becomes $1,040.

Vow #3: Review Your Tax Situation

With tax season approaching, there are a couple of things you could consider doing now to maximize the financial impact of your tax refund. For example, you may find it more beneficial to have your refund split between paychecks throughout the year. To do this, you would need to adjust your tax withholdings with your employer. Now’s an ideal time to speak with your financial advisor or CPA to discuss what changes you should be making now to get the most out of your tax situation for the coming year.

Vow #4: Set Goals

Ask yourself what you want to accomplish in the months to come. Is there a certain amount you’d like to have tucked away in your savings? Or maybe you’re focused on getting a promotion at work? Whatever it may be, set a specific (and attainable) goal that you can focus on working towards in 2021.

In a world where we’re all recovering from economic and environmental hurdles, progress is worth celebrating – and worth pursuing.

[ Read Next: 5 Reasons to Have a Financial Plan ]

Vow #5: Start Automating

Automation is an incredibly effective tool when it comes to working toward and achieving your financial goals.

Some things to consider automating include:

  • Bill paying
  • Investments
  • Paychecks
  • Loans (Your mortgage, student loans, car payments, etc.)
  • Savings

Automating as much of your financial life as you can takes the human connection and decision-making out of the picture. It cuts down on late payments, and it can make contributing to your savings account almost hassle-free.

Vow #6: Remember Your Retirement Savings

In terms of saving, 2020 had a different impact for everyone. Many lost their jobs, which impeded their ability to grow their retirement savings. For others, 2020 was an opportunity to sock more away than usual, since big expenses like vacations, concerts, weekend trips, etc. were canceled.

With enough stashed away in your emergency fund, 2021 may be the year to focus on padding your savings for retirement. If you have a 401(k), 403(b) or IRA, ask your financial advisor if you’re adding enough to it or if you should be upping your contributions each month. If you haven’t reached your contribution limits by the end of the year, consider making additional contributions – maybe from an end-of-year bonus or other additional income.

Vow #7: Watch Out For Identity Theft

There has been a rise in identity theft during the coronavirus pandemic, meaning you need to remain vigilant in protecting your finances throughout 2021.

Some ways to avoid being a victim of fraud include:

  • Asking questions before sharing personal information with others
  • Creating complex passwords and changing them often
  • Keeping track of your mail
  • Reviewing all bank and credit card statements regularly
  • Monitoring your credit reports

[ Read Next: Protecting Your Parents: Identifying and Preventing Elder Financial Abuse in 2021 ]

We all are hoping for a better 2021, however, it’s always best to be prepared especially when it comes to your finances. These seven tips should help with the transition into a new year – hopefully, all of us can breathe a little easier, save for the future and have some fun.

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Disclaimer: The information provided here is general and intended as educational in nature. It is not intended nor should it be considered as tax, accounting, or legal advice. Investec Wealth Strategies and its advisors do not provide tax, accounting, or legal advice. We recommend you seek the counsel of your attorney, accountant or other qualified tax advisor concerning your situation.