For many Americans, 2021 is going to feel like a tale of two economies. After all, things got worse for a lot of people during the past year — jobs and businesses were lost, savings was spent, credit cards became a crutch and some even lost their homes.
If there’s one thing we’ve learned from 2020, it’s that the future is never certain. With that in mind, there are three things I recommend doing to make a real difference in your financial health — and wealth — this year.
But first things first: Before you commit to any of these resolutions, you need to know where your money is going, so start by tracking your spending for a month. You can use a simple spreadsheet or an expense-tracking app to record all your purchases (or go old-school with a handwritten list). Don’t judge yourself, just pay attention to what you’re spending your money on. Once you have a better understanding of where it’s going, you can start making a plan.
Budgeting is a little like dieting. You can’t stop spending money or go on a restrictive budget if you don’t know what expenses are actually important to you.
1. Save more
Having a safety net, even a small one, is incredibly helpful. But do yourself a favor and don’t think of it like saving. Think of it as paying your future self. An easy way to do this is with automatic transfers that come out of your paycheck and go directly into your savings account.
These small amounts can really add up. For example, you may dread the thought of paying your annual holiday spending bill a couple weeks after you make all those purchases. But you don’t have to wait until next January to figure out your budget for the 2021 holiday season. If you automate a $25 transfer out of each paycheck from now until Thanksgiving, you’ll have $600 to set aside for next year’s holidays. If you put that money into a high-yield savings account, you’ll have even more.
2. Pay down debt
If you’re paying down debt, whether it’s loans, tax payments, credit cards or something else you owe, you want to figure out how to pay it off. If you have high-interest debt like credit cards, for example, paying off your biggest debt first will save you more money in the long run. However, if you have a hard time staying motivated to chip away at your credit card payments, paying them off smallest to biggest may be a better strategy for you.
3. Spend less
There are actually quite a few ways to spend less money. Evaluate your expenses and figure out which ones are unnecessary. Do you really need to order takeout as often as you do? Must you subscribe to all those TV channels or streaming networks? Can you live without memberships to some of the organizations you belong to? Have any of your free magazine subscriptions rolled over into paid subscriptions? (Cancel them.) Can you weed out any digital subscriptions? If you’re working out at home, how about freezing or canceling your gym membership?
Another way you can spend less is by consolidating debt on high-interest credit cards and transferring balances to a card that offers 0% interest for at least a year. Just watch out for fees and make sure you’re only transferring an amount that you can realistically pay off before the introductory rate jumps up. Refinancing with a low-interest loan is another option to consider.
There’s no time like the present to make — and stick — to new financial resolutions for the new year. It’s all about taking the time (no matter how hard it may be to squeeze it in), doing some planning and keeping your eye on the prize.