The new year is almost here (thank goodness)! Are you ready for 2021? A brand-new year, always ripe with resolutions, is the perfect time to reassess your financial attitude, improve, and vow to do better!
Here are some tips to get you started off on the right foot financially in the new year!
Refresh your budget
A realistic budget will help you set your financial goals and remind you to stick to them. These last few days in December, as the year draws to a close, is the perfect time to assess last year’s budget or to create a new one if you don’t yet have one in place.
Reviewing where you spent last year’s money will help you make better choices. For example, if you did not save money for retirement, this is a great time to prioritize your retirement in the new year!
Even with a solid strategy in place, there will always be surprises along the way – as we have learned this year - losing a job, a leaking roof, or an illness can throw off your entire plan. Don’t forget to build an emergency fund into your budget.
Plan to meet your financial goals
Next, consider how you will accomplish your goals next year. You’ll have short-term goals, such as purchasing a new car or home, as well as long-term goals, such as saving for retirement. Each set of goals requires a different kind of planning and saving.
A great way to track progress is to set up a separate savings account for each goal. That way you can see just how much progress you have made throughout the year.
Experts suggest working backwards to determine how much you need to save for a specific goal. Be sure to establish a reasonable time-frame and the amount you’ll need to save each month to reach that goal. If you are too ambitious and don’t plan accordingly, you may just have to move your set goal date.
A common resolution for the new year is “to be more mindful”. Use this opportunity to put mindfulness into practice with your finances. Start by identifying the difference between your needs and wants. Needs are necessary for your survival and include items like food and shelter. Wants are things that are not necessary, but you would like, such as a luxury car or vacation.
As you spend throughout the year, first tend to your needs. Then, based on what’s left to work with, consider your wants. This might sound obvious, but for many of us, the line between wants and needs is often blurred.
Maximize retirement contributions
Retirement plan contributions can be a valuable source of savings, especially if you have the option of employer-matched funds. If you do, be sure to take advantage of them!
Check with your HR contact and your accountant to make sure you are contributing the optimal amount to your 401(k) and IRA to make the most of your savings!
Check your flexible savings account (FSA)
If you have unspent money in your FSA or HSA, now is the time to use it! These pre-tax dollars often have to be spent before the end of the year. Do you need a new pair of eyeglasses? Are your teeth in desperate need of a cleaning or repair? This might be a good time to spend that money on self-care and other needs you’ve been pushing off. You don’t want to lose this money, so be sure to use it if you can.
Put the brakes on holiday spending
Avoid going overboard on your holiday spending. Think before you pull out your credit card and stick to a gift list when you go shopping to avoid impulse purchases. Going over budget now can mean spending the first few months of the new year playing catch-up with your credit card bills. Spend less and start the year off with a clean slate!