It’s now clear we’ve bid good riddance to the year 2020. With COVID-19 having upended life across the world, the pandemic has created financial stress and chaos for people of all walks of life. Unfortunately, we are likely to deal with a pandemic fallout in 2021, which could mean a continued rocky ride experience for your finances.
This doesn’t mean 2021 will be a bust, and you’ll not have to postpone or eliminate your financial goals and plans. Instead, you should become more strategic, focused, and savvy about money goals as you get your finances in order for the New Year.
Despite all the uncertainties that lie ahead, here are some insights and tips that can help you prosper financially in 2021:
Assessing your situation holistically and honestly
By reviewing your financial progress in the year 2020, assess if you’re particularly proud of any achievements. Be frank with yourself about your current financial situation while you take a look at your experiences and how you got here. Would you go back and reconsider any decisions you made? Your financial habits should correspond to your lifestyle aspirations.
Calculating or reviewing your current net worth is a good idea – this includes assessing all your liabilities and assets. It acts as a useful benchmarking tool to help you prioritize your saving and spending habits going forward. Most importantly, if you’ve undergone a significant life change recently, such as marrying or having a child, or are expecting to retire in 2021, there’re several considerations you have to table before making your next move.
Have some of these questions answered:
- Assets – What investments and assets do you have-both in fixed and liquid form? What is their current value? What plausible investment return scenarios have you achieved during the year? And are you utilizing tax-advantaged investments like a 529 College Savings Plan or 401(k)? Does your portfolio need re-balancing due to changes in the financial markets or because of life changes such as nearing retirement?
- Debts and credit – Aside from a mortgage, do you have outstanding loans or upcoming future debts? What’s your credit card debt, and how often do you pay it off? What’s your credit score?
- Expenses – What were your expenses in the past year? Did you have unusual costs that are trending in any direction? Do you have a monthly budget and emergency cash to cater for contingencies? (If not, you should have these.)
- Insurance – Are your possessions and family adequately covered? Are you paying reasonable premiums for the coverage you have? You can always negotiate or find a better deal.
- Income – How much cash did you make in the past year, and do you expect your income to increase? Do you have realistic strategies to help it grow?
As an important part of setting realistic goals, you should start with a simple task of finding out answers to these questions. They will help you redefine and sharpen your goals.
Exploring your options
The volume and range of financial resources can be overwhelming in this digital era. While self-education can be an excellent place to jump start, consulting with professionals can help explore investment products and strategies. You can get useful insights from professionals like Jeff Sica, who has a wealth of business startup and management experience. Don’t hesitate to ask or seek an answer to a question that may end up costing you valuable dollars.
Make a plan and stick with it
Being the most important and most challenging part of any resolution, ensure that you formalize your plan in writing and keep reviewing your progress. Whatever goal you decide to move forward with, it will require significant financial discipline. Remind yourself frequently about your goals and avoid extra spending.
Establish more than one stream of income
When the coronavirus pandemic struck, more than 20 million people lost their sources of income. To protect yourself from the impacts of reduced income or unemployment, establish multiple streams of income. Ideally, these income sources are passive, ranging from dividends to digital side businesses and rental property, among others. If you lose your job or your working hours get cut, you can live off your side hustles and reduce your expenses without tapping your emergency fund.
New Year comes with a lot of excitement, and you may be tempted to make extreme lifestyle changes. Drastically altering your spending and saving habits is setting yourself up for failure. Take it step by step. For instance, you could save money by taking your lunch to work rather than eating out.
Planning yourself financially as the year ends is the stepping stone to creating a solid financial plan for 2021 congruent with your long-term goals. This is a time to re-assess your financial health as you plan for the future. According to experts, the best time to scrutinize one’s investment failures and plan accordingly is at the beginning of a new year. With your New Year’s cap on, take this chance to look at your investment portfolio and make personal financial resolutions that will draw you closer to the life you’ve always wanted.