If one of your top priorities was to improve your finances in the new year, there’s good news: You still can. While many of us are facing several new and existing financial challenges, there is still plenty of opportunities to improve your financial situation.
It’s important for your financial future that you take a few steps back in order to recognize the possibilities and apply some of the same money principles you’d use in any “normal” situation to solidify your financial state
If you’re unsure what you should be focusing on or where to start, below are a few proven ways to get you started.
1. Make a plan to pay down your debts
In most roundups, you’d likely see ‘increasing your savings’ or ‘padding your budget’ as the very first tip. While that’s certainly something you should always aim for, it’s not always the one you need to hear or need to be focusing on. The reality of it is that households could be in a very different situation, financially, if they focused more on their debts and liabilities.
That’s exactly where having a debt management plan comes into play by helping you set aside as much money as possible to pay off your debts. You’ll want to avoid only meeting and paying the minimum payments each month. Instead, you should be aiming to make significant progress by paying down as much of the principal as you can. In situations where it applies, within your financial capabilities, make sure you’re paying off your debts every month.
Now, if you’re stuck between multiple credit and loan accounts, you’ll want to focus on paying down the balance on the accounts with higher interest rates as quickly as you can. Once you’ve tackled the first account, make your move to the next, and so on.
2. Protect your home and your power
This is an unlikely number two, but that’s exactly why we have it listed as number two.
It might surprise you to learn that a backup generator can do more than keep the power running in the event of a power outage or natural disaster. This level of preparation can actually end up saving you a significant amount of money in the process.
Still not sure how? Let’s consider the below.
For example, think of all the refrigerated food you might lose during an outage. It certainly adds up. Now, what about your ability to work or earn an income especially considering that most of us are working in our homes. This could seriously set back your work hours or even online sales you could make, once your computer’s battery loses its charge. Those losses will cost you both in the immediate, along with opportunity costs.
A generator can provide you with backup power and prevent these losses — plus, it can keep your home from being targeted by thieves during a blackout. The greater security provided by a generator could even lower your rate for homeowners insurance.
3. Evaluate your tax withholdings
Shoot for that sweet spot with the IRS. If you withhold too much money during the year, yes, you’ll get a refund — but that money could have been earning a significant amount of interest for you in the meantime.
Of course, if you withhold too little, you’ll find yourself having to pay when April 15th arrives, which can bust your budget and even cause some unwanted financial stress. Do the math beforehand and reap the rewards.
4. Improve your credit
Building your credit isn’t difficult in theory, but it does require a commitment to responsible borrowing. Using your credit accounts wisely is what will ultimately help you build and maintain a good credit score. Not only that, but it’s also a good financial habit that can help you stay focused and achieve your goals.
The most important thing to do is to keep control of your credit so you can achieve your financial goals without digging yourself into debt.
Importantly, there are five key pieces of information used to calculate your credit score. Know these will help you better build and improve your credit:
- Your payment history
- The total level of debt
- Credit age
- Your credit mix
- Recent credit
5. Evaluate your retirement plan
Regardless of your current age, income status, or financial situation, retirement planning is a must, especially with rising costs and uncertainty about Social Security.
The first place to start would be to get clear on what retirement looks like to you. By setting your retirement goals, you’ll have a basic understanding of your desired outcome. Next, you’ll want to calculate your retirement to better understand your current situation and what steps you’ll need to reach your goals. Using tools like Savolgy’s free retirement calculator will help you determine your retirement age, retirement income, and suggested recommendations in as little as a few minutes.
Next, you’ll want to create a game plan for your retirement savings and investments. If your employer offers a 401(k) with matching contributions, don’t hesitate and take advantage of that: It’s as close as you’ll come to ‘free’ money.
And the more of your own money you can put into the pot, the better. The maximum contribution amount for 2021 is $19,500, and the “catch-up” contribution limit for people over 50 has risen to $6,500.
6. Review your insurances
Insurance can protect you from financial crises, ranging from car crashes and unexpected critical illnesses to home repairs and even a death in the family.
The beginning of every year, or at least when any given policy is coming up for renewal, makes for the perfect opportunity to revisit your insurance policies and your coverage limits, deductibles, and monthly payments. Make sure you aren’t paying to insure yourself against losses you could handle without coverage, and that there’s no overlap in your policies.
In fact, reviewing your insurance policies annually is a great opportunity to find ways to not only better protect your financial plan, but also to save money that could easily be saved. Jordan from Savology wrote about his personal experience with this and he was able to save several thousands of dollars by reviewing his auto insurance policies every year.
7. Inventory your spending
Take a look at how you’re spending your money and find ways to cut back, or even eliminate spending entirely, where you can. It’s far too easy to add new monthly expenses without being mindful of our own spending habits. Beware of the offers for “the first x months free” that eventually convert into recurring monthly charges. If you find yourself in this situation, make sure to always set a calendar reminder for yourself several days, or even weeks, before the payments take effect.
While you’re keeping track of subscription expenses, keep an eye on your spending in other areas and categories as well. Do you spend too much eating out weekly, on streaming services, on broadband costs, or even on other nonessential expenses? Identify those first, then make it a top priority to cut back.
8. Put your windfalls to work for you
If you end up receiving a tax refund, bonus, or some other form of additional ‘excess’ money, don’t take the impulse route of spending it right away. Instead, sock that money away into savings.
Remember, it’s not part of your regular budget, so why treat it as such? The last thing you need is to think you’re making more money than you are by treating it as normal income — only to find that you’ve overcommitted by using it the same way you would with your regular income. Instead, be more intentional with this additional money and use it as an opportunity to help increase your financial situation and cement your financial security.
9. Find a secondary income source
Last but not least, look for opportunities to make a few extra bucks on the side. There are plenty of benefits that come with increasing your income, so it would be extremely unwise to downplay them, especially since we’re talking about managing money after all.
Delivery services for just about anything have become rising in demand during the pandemic and there’s no sign of slowing down any time soon. You could explore driving for Uber, Lyft, or even parcel delivery routes.
In addition to delivery services, selling second hand goods and collectibles has also become a popular way of helping people find ways to declutter while earning a few extra dollars along the way. Websites like eBay, Facebook Marketplace, and Craiglist make it relatively easy.
Safeguarding your money this year
Even though our new normal is still very much abnormal in many ways, there are still several tried-and-true strategies to make, save, grow, and protect your money. Our best three pieces of advice moving forward would be: Do your research and explore your options, focus on what’s within your control, and lastly stay optimistic.
Your financial future starts today
Savology has helped tens of thousands of households across the United States improve their financial well-being by providing comprehensive digital financial planning. Users can get started with our free financial planning or premium monthly planning memberships, allowing them to build a personalized financial plan, holistic report card, personalized action items, and more. In addition to our consumer-facing platform, we’re helping employers across the country provide their employees with effective financial wellness benefits.