Happy New Year!
2020 was definitely a crazy one and I think it’s safe to say that many of us are looking forward to starting fresh in 2021. New Year’s resolutions may seem cliché, but I’m actually a big fan of them. According to a Google search (powered by Oxford Languages) the definition of resolution is “a firm decision to do or not to do something.” You can start a resolution at any point in the year, but what better time to set goals and prioritize than at the beginning of a new year? So, without further ado, here are 7 financial resolutions to set for the new year.
1. Max Out Your IRA Contribution
The IRA contribution limit for 2021 is $6,000, or $7,000 if you are 50 or older ($6,000 plus $1,000 for the catch-up contribution). Personally, I like to max out my IRA contribution as soon as possible in the new year. It’s just nice to do a one-time contribution and not have to worry about it for the remainder of the year. However, everyone’s financial situation is different, so a one-time contribution to meet the maximum may not be possible. In this case, I recommend setting a plan to reach the contribution limit, whether that be putting away $500 a month for the whole year or basing your IRA contributions around when you receive a bonus or money for a special occasion.
2. Pay Off Debt
Whatever debt you may have, credit card, student loans, car loan or a mortgage, try to pay more than the minimum payment to accelerate the time it takes you to pay that debt off. My husband and I set a goal for 2020 to try to pay off our mortgage as soon as financially possible. Sadly, we were unable to put extra money towards our mortgage last year, as my husband’s company cut both raises and bonuses (money we were planning to put towards the mortgage principal). Thankfully, we made a very successful short-term investment that we will now utilize some of the proceeds for paying down our mortgage in 2021.
3. Invest for the Long-term
Individual stocks are not for everyone and that is totally okay, but that doesn’t mean you should avoid the stock market altogether. There are plenty of options when it comes to investing your money. If stock picking seems too scary or too hands-on for you, consider investing in an index fund, ETF, mutual fund or bond. The stock market can be volatile, but your future self will be thankful you took the risk and kept your money invested for the long-term when you reap the benefits of compounding.
4. Budget
Budget can be intimidating, but they are a great tool to make sure your money is being spent (and saved) wisely. For the start of the new year, make sure to set a realistic budget and stick to it all year by monitoring your actual spend versus what you budgeted. You can do this at whatever frequency you’d like. For example, my husband and I sit down once a month to review our monthly spending together in detail. We do check our credit cards and bank transactions daily, though, especially to help avoid/catch any potential fraud. Be sure to budget for savings, as well as expenses.
5. Plan for Big Spending
One thing I have noticed a lot of people struggle with is saving up for big purchases ahead of time. Many people have a mindset of do this now, pay for it later thanks to things like credit cards and loans. I personally think it’s better to think, plan and save ahead for bigger, more expensive purchases. For example, if you know you want to renovate a room in your house, try to estimate the cost and set a time frame for when you’d like it done. Then, you divide the cost by the amount of time between now and when you want to start the renovations and set aside that amount per month (or week). The same concept applies to vacations, cars, buying a house, purchasing furniture, etc.
6. Set Savings Goals
I am very month-oriented when it comes to setting goals, so at the start of the year I like to figure out how much I want to save for each of the 12 months of the year. Before doing that, though, you need to determine what it is you’re saving for. Are you saving for retirement? Kid’s college? A house? Emergency fund? Vacation? Once you figure out what you want to save for, then you can determine how much you needed, by when and then how much you need to put away each month.
7. Stop Comparing
Stop trying to keep up with the Joneses; the Joneses are broke. Okay, maybe not ALL the Joneses are broke, but in 2021, focus on yourself and ignore what all the Joneses around you are doing and buying. I know several people who’s lives look way more glamorous than their finances do. What I mean is just because someone appears to be living a rich lifestyle does not mean they are actually rich. They could just be riddled with debt. So, when you get house envy or car envy or vacation envy or clothing and accessory envy, just remind yourself that you don’t have that stuff because you are focused on your financial health, regardless of how that may appear to others around you.
Make 2021 (and every subsequent year, honestly) the year you prioritize yourself. Prioritize your mental health, physical health and financial health. Set goals, try to reach them and if you don’t/can’t this year, keep trying the next year and the year after that. Wishing you all a happy, HEALTHY new year!
