Eight Tips to Help Improve Your Financial Outlook in 2021 and Beyond
Are you planning on making New Year’s resolutions for 2021? Don’t forget about your finances. The new year is a great opportunity to reflect on your financial progress and make improvements going forward. While you’re on the treadmill working of those holiday cookies, consider the following tips to help tune up your finances in the new year.
1. Reevaluate your financial goals
It’s important to update your financial goals on a regular basis to make sure they remain in line with your ever-evolving life. Your financial advisor can help you identify any changes that should be made to your financial plan to help ensure it continues to meet your needs.
2. Access your credit report
Each of the major credit bureaus, Equifax, Experian and TransUnion, allow consumers to access one free report each year. Take advantage of this opportunity to double check your credit score and identify any unexpected errors.
3. Increase retirement plan contributions
Making small annual increases to your retirement plan contributions can have a big impact on your savings. Consider upping your contribution by 1-2 percent each year. By making small, incremental changes, you’ll be unlikely to even feel the impact on your take-home pay.
4. Recommit to paying off debt
Resolve to pay extra each month (ex., $100) to any outstanding consumer debt. Also consider directing additional funds toward paying down your mortgage principal. The sooner you tackle your debt, the sooner you’ll achieve financial freedom.
5. Rebalance your portfolio
Rebalancing to your original (or an updated) asset allocation helps lock in gains from top-performing sectors and ensure your portfolio remains in line with your investment objectives and risk tolerance.
6. Reevaluate your employer benefits
Hopefully, you did this recently during your employer’s annual benefits enrollment period. If not, take some time to review your benefits to make sure they continue to meet your needs. Consider whether the life, health and disability insurance provided by your employer is adequate to meet your needs. Also plan for any employer-paid educational opportunities you may wish to take advantage of throughout the year.
7. Fund your health savings account
If you participate in a high-deductible health insurance plan, contributing to your HSA is a tax-efficient way to save for unexpected medical expenses. In 2021, the HSA contribution limit is $3,600 for individuals and $7,200 for families.
8. Make a budget and stick to it
In order to achieve your financial goals, it’s important to identify how much you should reasonably spend each month and compare that amount to your earnings and income. Begin by identifying fixed and discretionary expenses. Fixed expenses are those you must pay each month and may include:
- Rent/mortgage
- Minimum credit card payments
- Car payments
- Insurance
- Utility bills
- Cell phone
Discretionary expenses are costs you choose to take on that are not essential for living your life. These are wants, not needs. Examples include:
- Eating out
- Movie and concert tickets
- Streaming TV subscriptions
- Gifts
- Vacations
Once you have added up your fixed and discretionary expenses, you will have a clearer understanding of whether or not these expenses fall within your budget, based on your income and long-term goals. If not, consider areas where you can cut back. Do you really need to eat out four times a week, or if you can cut back to one or two times per week? When was the last time you used your monthly streaming subscription? Can you save some money by taking a vacation closer to home instead of flying to a far-off destination? While each of these decisions involve short-term sacrifice, they have the potential to pay off over the long term.
Need help implementing your New Year’s financial resolutions? Creative Planning is here for you. Our teams work to ensure your financial plans continue to meet your long-term goals, taking into consideration a wide range of factors, including your current financial situation, goals for the future and any challenges you may face. If you’d like help with your financial resolutions, or for any other financial matter, please contact us.
