The Financial Moves We Should All Be Making in 2021
In 2020 we experienced the biggest economic contraction in history followed by economic growth at a staggering 7.4% from July to September. More than 20 million Americans lost their jobs, yet the stock market hit a record high. Confused? Even the experts are scratching their heads. And it’s making many consider their next move carefully. When it comes to the financial moves we should be making for 2021, it’s not just about the importance of saving money. It’s also about taking back control of your finances. Here’s some money advice to consider.
Assess Your Finances
Without a crystal ball to see into the future, the next best thing is a clear picture of your current financial situation. That means pulling together a comprehensive breakdown of your monthly income and expenditure, loans, investments and liabilities. It’s also time to find out your credit score if you haven’t done so already. Your Smart Credit Report will show you where you are at the start of 2021 so you can plan where you want to be by the end of the year.
Focus on Debt
The average American carries just over $90,000 in debt, spread across mortgages, credit cards, student loans and personal loans. The more you know about what you owe, the faster you can achieve financial freedom. In particular, explore options for the following:
- Work out your debt-to-income ratio. Ideally, you want your current debt level to be no greater than 36% of your income.
- Consolidate your loans and prioritize paying off those with a higher interest rate.
- Switch to a credit card with a lower interest rate through a balance transfer.
- Talk to lenders if you’re at risk of mortgage or repayment arrears.
- Use available cash to clear debt before allocating to savings accounts.
Cut out Unnecessary Expenses
New year, new you. Surprise yourself with how much you can set aside through a little financial mindfulness. That means canceling all the subscriptions you don’t use, only shopping for groceries with a list, skipping take-out coffee and challenging yourself to find a cheaper option for every purchase, either through buying in bulk or buying used.
Set a Goal for 2021
Put your debt on a slimming plan and commit to bulking up your savings. It will be much easier to save money and achieve financial freedom if you are aiming for an end-of-year goal. Once you’ve calculated your debts, establish a monthly savings percentage to build your 2021 nest egg.
The Importance of Saving Money
Despite the rigors of the pandemic, there was some good news in 2020. Personal savings peaked at the highest level in history, hitting 34% of disposable income on average. With fewer distractions and opportunities to spend, many of us have developed a strong saving habit that we can keep going in 2021. Think of saving as paying yourself first, divided into the following:
- 401k. You can add up to $19,500 in your 401K in 2020 plus another $6,500 if you’re over 50.
- Medical care. You can contribute up to $3,550 into a Health Savings Account (HSA) before April 15, 2021.
- Mortgage down payment. The more you can save for a downpayment, as in 20% rather than 5%, the lower the interest rate you will pay on borrowing.
- Emergency fund. Aim to set aside two to three months’ salary to cover unexpected expenses, from medical bills to car repairs.
Diversify Your Income
If your entire income is from one job, make 2021 the year you spread your talents to incorporate a side hustle, even if you’re just turning a hobby into a revenue stream. Time is its own currency, so if you can exchange an hour normally spent watching TV for an hour learning new skills through an online course. You’ll add further strings to your bow, so to speak. Make passive income a goal too, through micro-investing or building a stock portfolio.
Secure Your Identity
Let’s make sure that 2021 isn’t the year your Social Security number or personal details are hacked by identity thieves. The risk is constant, so take a moment to reset all your passwords, add two-factor authentication to all online accounts, and check your credit report and bank statements for suspicious activity.
We’ll avoid making any predictions about 2021, but we do stand by these reliable financial habits that consistently yield success. To make more moves toward financial success, discover how SmartCredit’s suite of tools and services can help you plan for the year ahead.