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Thank goodness—2020 is over. It is done. I hope you are excited about the year ahead! It seems odd that the year is changing and we are still in the middle of a raging pandemic. While it doesn’t seem possible we are starting a new year, it’s a great time to reflect on the past year and think about the year to come. That’s why I’ve put together this article of eight financial tips for 2021, which will help you start the year off on the right foot.

I’m sure you’re expecting some of the financial tips in this article, but I hope you’ll find a few recommendations that you don’t expect.

The purpose of these financial tips for 2021 is to take a little time now to get organized to set your focus so that you save yourself time, frustration, and the potential for stagnation. 

A Quick Disclosure on the Financial Tips for 2021

Well, as you can tell by this title, I used to work in regulation. We love a good disclosure. This past year is the epitome of why this disclosure exists. 

Every year is like a winding road we have yet traveled. As we go down the road, we likely know curves are coming but can’t know exactly which way they’ll lead or at what speed to take them. 

These 2021 financial tips are to help you set your best path forward with the information you have today. Make time to implement them, but don’t worry about being perfect. You’re going to need to adapt and make changes as the year happens. 

As Dr. Thia, MPower Co’s Director of Education, would say, “B+ execution is good enough!” 

Financial Tip #1: Assess Your Finances as of Today

It is essential to take some time to be realistic about what your finances look like today: the good, the bad, and the ugly. 

Take time to look at your accounts and celebrate the successes you have made over the past year (i.e., if you have a retirement account, my guess is that 2020 was good to its balance). Perhaps you built up your emergency fund.

Also, take time to consider the negative. What were you missing this past year that could have helped you financially? Did you forget to set aside money for your property taxes (I always hate getting this bill in December, an already expensive month for us!). Or maybe you used up some of your emergency funds this past year (Don’t beat yourself up if you are in this category; some of us just needed to survive 2020).

I’m going to suggest the ugly is having increasing credit card balances that are carrying into the new year. 

Take time to think about it, assess, and then move onto step 2. The good, the bad, and the ugly may shape some of the things you focus on.

Financial Tip #2: Set Goals

You may be thinking that this step should be about setting a budget (you won’t find that term in any of the tips), but you cannot form a spending plan without knowing what you want out of the next year. 

Goal setting is stop number one to setting yourself up for success in the new year. Additionally, it’s a great opportunity to connect on what you each want and need out of the coming year if you are in a relationship. 

While not all goals have to be related to finances, many are. With the pandemic, many are thinking about their career goals with a new perspective, and a career change may require training or education that costs money. Some of us may be deciding that where we live does not meet our needs. Just the act of moving has financial implications, but there are also financial considerations to make concerning where we live. 

Now, you may be thinking, but goal setting is going to take a ton of time. I’m not really sure how to consider all of the things. That’s why MPower Co created a Goal Setting Guide

It will guide you through a simple, two-step goal setting process that will help you narrow down who you want to be, what you want to do, and what you want to have. Perhaps best of all, by using the guide you can have your goals for the new year set in 30 minutes or less. Print out a copy of the guide for yourself, your partner, and the kids in your life. Make sure you all have a say in what the next year could look like for your family. 

Financial Tip #3: Check Credit Report

This is something to do at least once a year if not once every four months (one from each credit reporting bureau). The beginning of the year is a great time to review it and make sure that someone else isn’t affecting your credit worthiness. 

For a great article on this, Dr. Thia shared in this blog post about how a routine check of her credit report revealed someone was using her Social Security Number. 

There is only one place to check your credit reports for free: annualcreditreport.com. This feels wrong, because there are many sights with the word “free” in them; however, they’re not free. They will require some information and/or money to truly access your credit reports. 

It will not hurt your credit score to check your credit report, and it’s a macro way to check in on how you are doing financially.

Financial Tip #4: Set Routine Medical Appointments

You may be thinking that this is not needed in a list of financial tips for 2021; however it is! Health and wealth go hand-in-hand. By taking care of yourself physically you are protecting your pocket book in the long-run. 

Take time to set up your annual physical, dental exams, eye exams, and, my favorite, a skincare check (I think this often gets forgotten about but is essential!). 

My old employer allowed me to use a sick day for appointments, so I would schedule as much as I could on one day (a couple of appointments in the morning and then one in the early afternoon). I would then reward myself with an afternoon movie or a visit to my favorite coffee shop to read. 

If you pay for insurance, use it. Paying for dental insurance but not getting dental cleanings is not a smart financial move. Also, by calling now and scheduling your appointments through the year, you are likely to get the appointment times you want, and you ensure that you don’t forget to set the appointments all together. 

Financial Tip #5: Review Your Tax Withholdings

Everyone approaches taxes differently. If you choose to have funds withheld from your paycheck to pay federal and state taxes, think about the past year and if you’ve had any significant life events that could change your status from a tax perspective. 

If you’ve gotten married, divorced, added a child to your family, had a dependent fly the coop (so to speak), enjoyed a significant increase in income or expected one in the short term, added a side hustle, and the list goes on. It’s a necessary time to consider if your withholdings need to be adjusted. 

Having more withheld than you need is not a great financial move (you lose the value of time). If you don’t have anything withheld or expect your taxes to be higher next year, you don’t want a surprise. 

Financial Tip #6: Update Your Retirement Contributions

If you haven’t started saving for retirement, now is the time. If you’ve already begun, now is the perfect time to up your contribution. 

In 2021, the IRS has indicated the maximum you can contribute to a qualified employer retirement account is $19,000. For individual retirement accounts, you can contribute $6,000 ($7,000 for those over 50 years old).  

When it comes to how much money you should save for retirement, MPower Co recommends that you put in as much as possible.

The maximum of $19,000 or $6,000 may not feel achievable. Start at 8% or 10% if you haven’t saved for retirement before. If you’ve been saving, but aren’t at the maximum, take the time now to increase your contributions by 1% or 2%. Small, incremental changes do make a difference!

Financial Tip #7: Determine Your Income Cash Flows

Now it’s time to get to the dollars and cents of 2021. Think through the year and when you expect to have money coming in. Consider all of your sources of income (salary, bonus, stock options, rental properties). Map them out.

This seems like a nominal task, especially if you have one income source; however, it’s still important to do! 

In my old job, I got paid every other Friday. Do you know there are two months where I got three paychecks!? Cha-ching! However, that also meant that it adjusted when my income came in versus specific bills. 

Having my income mapped out was necessary to make sure I didn’t overspend when I needed the money to pay for my housing and other essential expenses.

Financial Tip #8: Prepare a Spending Plan

You can call this a budget, but I like to think of it as a spending plan. It just sounds more fun and more flexible. 

Now that you have your income mapped out, map out your expenses.

It’s easy to remember your housing, your debt payments, etc. But be sure to think about the one-offs (property tax bill in December, sporting tickets you buy annually, etc.). Look at where you have surplus and when you have a shortage of income. 

For example: December is a rough month in our house that we have to plan for. We have two birthdays, the holidays, property tax, and our HOA dues. If we didn’t know about or prepare for this shortage it could really put a damper on the month of fun.

To pull this all together, focus on how you can pay down debt (to help your credit score) and how you will fund your goals (it’s not too late to get our Goal Setting Guide!) By having a spending plan that supports your needs and goals, you can feel more confident that 2021 will be a successful year and that you can make easy adjustments when the inevitable curves come (hopefully, much more minor than the major ones of 2020)!

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MPower Co is a mother-daughter owned and operated financial education company that incorporates positive psychology into our teachings. If you enjoyed reading this article or found it helpful, follow MPower Co on Facebook or Instagram. MPower Co posts current financial and positive psychology topics, and shares new blog posts like this one once released.