A No-Resolution Plan for Better Finances in 2021
Improving your financial outlook takes just a few simple strategies. And relax – they don’t involve resolutions.
The new year is typically a powerful time to reflect on how you may want to shift things and/or make positive changes in your life. For some of you, that may mean eating healthier, working out, paying down debt or developing new financial habits.
Notice that I did not mention anything about a New Year’s resolution? The reason is that research shows that people don’t stick to them!
Instead, I want to provide you with some strategies that are simple, yet effective, to help you make lifestyle changes that will ultimately not only help you take control of your finances, but also help you become the very best version of your financial self.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Be S.M.A.R.T.er
The first strategy to help you jumpstart your new year is to set S.M.A.R.T. money goals. S.M.A.R.T. is an acronym that stands for Specific, Measurable, Attainable (or Achievable), Realistic and Timely.
Let’s start with Specific and Measurable. Here’s an example: Your goal may be to “spend less or invest more.” That’s a great goal, but it’s not specific enough. If you instead said, “I will save or invest $1,500,” that’s a bit more specific and measurable.
Now let’s look at the Achievable and Realistic component. Using the same example, if you said, “I will invest $125 from each paycheck directly into my savings or retirement account or toward paying down a specific debt,” that is likely achievable and realistic.
Your goal must also be Timely, meaning you have a timeline for completing it. In this example, you said that you want to achieve your goal in one year’s time and $125/month over 12 months equals $1,500 for the year.
So, if you're really serious about achieving your financial goals (or any other goals!), make them S.M.A.R.T.
2. Know Your Financial Flow
You have to get real about your spending. Understanding where your money is going is the foundation for developing healthy spending habits. Technology has made tracking your spending easy and there are several apps you can use, most of which are available on all of your devices. For example, Mint’s personal finance app enables you to create a budget, track your bills and monitor your spending and debt. Truebill is also another finance tracker that makes it easier for you to take control of your money and stay on top of your financial life. You may also want to utilize the “50/30/20 Rule” – 50% of your income is allocated to meeting your needs, 30% to your wants, and 20% to savings.
3. Get on a Debt Diet
You must also get real about your debt. Take some time out to sit down and make a list of your debts, so you can determine which debt to pay off first.
You might want to begin by clearing off the debts with the smallest balance first, known as the “Debt Snowball Method.” Another strategy is to begin paying off the debt with the highest interest rate first, known as the “Debt Avalanche Method.”
4. Give Yourself a Cash Cushion
It is important to save for emergencies. The general recommendation or rule of thumb is to save somewhere between three and six months’ worth of household expenses. However, in light of the pandemic, I recommend increasing it to nine to 12 months. If you don’t already have this in place, make achieving it a goal.
5. Invest in Your Future
Try making investing a habit. Begin with your retirement contributions. Set auto contributions if you haven’t already. If you’re already doing that, consider increasing your contributions by 2% (or more) of your income, and then set it to automatically increase the same amount next year.
Commitment is key. If you commit to following even a few of these tips over the course of the next year, you can improve your chances of getting your personal finances in gear and achieving your 2021 financial goals. You can do this!
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
Derenda King is a CERTIFIED FINANCIAL PLANNER™ professional, Certified Student Loan Professional (CSLP®) and financial adviser with Urban Wealth Management. She is also the owner of Collegiate Financial Coach, LLC, which provides financial coaching to families with college-bound students who need assistance with developing a college funding plan and to individuals seeking strategies for repaying their student loan debt. Prior to becoming an adviser, Derenda worked in higher education, and she is still an educator at heart. She provides comprehensive, holistic financial planning services, with an added focus on late-stage college planning, and is passionate about educating, empowering and equipping individuals with the knowledge to make more informed decisions about their money.
-
Earn Delta SkyMiles Worth Up to $1,800 with an AMEX Business Card
Delta SkyMiles and American Express offer 150,000 on business credit card for new cardholders.
By Ellen Kennedy Published
-
Stock Market Today: Markets Soar Amid Strong Earnings for Big Tech
Equities ended the week on an up note thanks to some of the market's biggest names.
By Dan Burrows Published
-
How Annuities Can Help You Retire Early and Delay Social Security
Waiting until 70 to claim Social Security benefits can pay off, so how do you bridge the gap between giving up your paycheck and filing for benefits?
By Ken Nuss Published
-
How to Get Your Kids to Step Off the Gravy Train
A surprising number of young adults live with their parents. Setting some financial ground rules could get the kids out on their own faster.
By Neale Godfrey, Financial Literacy Expert Published
-
Spring Is a Good Time to Clean Up Your Finances, Too
While you’re decluttering your home for spring, consider also taking a crack at cleaning up your finances and old paperwork.
By Tony Drake, CFP®, Investment Advisor Representative Published
-
Is Your Retirement Solution Hiding in Plain Sight?
Here’s how to use your home equity in combination with an annuity contract to produce late-in-life income.
By Jerry Golden, Investment Adviser Representative Published
-
How to Choose Your Trustee or Executor of Your Will
Above all, you should choose someone you trust, keeping in mind that acting as a trustee or executor can be a complex, thankless and sometimes long-term job.
By John M. Goralka Published
-
Three Steps for Women to Take Control of Their Finances
These strategies are especially for women who are new to managing their money because of divorce or the death of a spouse.
By Emily Glassman Published
-
How AI Can Help Take the Emotion Out of Investor Decisions
AI-driven recommendations can complement human judgment, leading to more rational choices that aren’t as influenced by biases and blind spots.
By Francis Geeseok Oh Published
-
Can You 1031 Exchange into a REIT?
No, you can't, but two other REIT-like alternatives let you defer capital gains taxes while giving you exposure to institutional-quality real estate assets.
By Daniel Goodwin Published