Getting ready for the New Year is always a task, as we all strive to do better than we did this past year. Given the ongoing pandemic, the upcoming year brings added challenges, which includes financial ones. COVID-19 has affected many of us financially, making it crucial we do all within our control to ensure financial stability in the coming year. Here’s a helpful guide to prepare your financial roadmap for the New Year.
BUDGET REVIEW
A productive starting point for financial success is analyzing your previous year; one reliable way to do that is through your budget, provided you maintained one. If not, it might take a little more time to analyze. While I find Excel spreadsheets handy, others may prefer a physical planner that simplifies the process. It should align with your personality and work style.
The review should focus on various categories such as:
Vehicle costs
Food expenses
Beverages, inclusive of alcohol
Household needs
Clothing
Gifts
Luxury items
Typically, regular monthly bills are constant, and are integrated in the monthly budget. This review allows an in-depth understanding of your spending patterns, identifying excessive expenditures. It enables better financial planning for the upcoming year. It’s also a perfect time to tweak category-wise allocations. If necessary, reduce spending – we aim to lower our costs by 25%, for instance, which will affect discretionary categories. Early planning helps in smoothly transitioning to a leaner budget – quite crucial if the pandemic continues throughout 2021.
EMERGENCY FUND
A critical piece of financial planning is the emergency fund. Astonishingly many don’t have this safety net despite the current job market volatility. If you are among these people, prioritizing an emergency fund is of the essence. Regardless of your income, start contributing, even at a modest pace. High yield savings accounts are recommended as they offer some earned interest. Despite a decline in rates, any interest is better than none. The goal is to accumulate at least six months-worth of expenses, ideally aiming for a year’s buffer.
A convenient way to start is to use tools like Digit, which links your checking and credit cards to your savings account. It rounds-up and deposits the difference into your savings account every time you spend. It also enables manual transfers when desired.
INVESTMENT STRATEGY
Re-visiting investments when planning finances for the New Year is crucial, provided you have already built an emergency fund. Despite a turbulent market, current investments can potentially lead to substantial future gains and early retirement. Numerous solutions enable investments with little money.
Platforms like Acorns facilitate investments with no startup costs, and you can invest as per your comfort. Though there’s a nominal monthly fee, its roundup feature combined with a multiplier enables substantial investments.
Betterment is another favorite tool as it delves into your retirement plans and provides targeted funds. With low fees, it offers an attractive investment avenue.
Lastly, services like Stockpile enable purchasing individual stocks via gift cards, starting as low as $1.99, forming a perfect gift!
REVISITING LIFE INSURANCE
Life insurance is often overlooked, but it’s essential to evaluate these policies regularly. With the downturn of rates, it’s an excellent time for coverage. Companies like Bestow provide instant online quotes with low rates, offering 10 – 20-year policies of up to $1 million, empowering you with flexibility. Securing life insurance leads to financial protection for your family in unpredictable situations, taking precedence in the current pandemic.
IN SUMMARY
Ultimately, to prepare for financial stability in the New Year, begin by editing and tweaking budget allocations, followed by building an emergency fund or bolstering an existing one. Subsequently, revamp your investments or initiate the process if new to it; myriad tools are at your disposal to ease you into it. Lastly, evaluate or secure a life insurance plan.
By following these steps, your family can look forward to enhanced financial security in the coming year.
The question lies, in what ways have you geared up, financially speaking, for the New Year in order to foster financial stability for your family?
