Reassessing your Finances for 2021
The year 2020 was a strange one for all of us. Our usual patterns of life were overturned, businesses floundered and shut down, other businesses had to change to a whole new way of working, and social activities were largely shut down. Many people lost their jobs and found themselves having to cut back in order to make ends meet. The year 2020 taught us a lot about the uncertainty of life and the need for saving in the good times (though it doesn’t seem to have taught our government).
In light of 2020, I wanted to leave a number of tips and thoughts for improving your financial and personal well-being in 2021.
- Revisit Your Budget
We aren’t past the virus yet, even though there is a vaccine. Now is the time to revisit your monthly budget to see what things can be cut back. If you have two cars but hardly go out, consider putting one in storage or changing the usage to pleasure use to save on insurance costs. Are you paying for a gym membership or other membership that you aren’t using?
For any money you free up, either pay down debt or set up a monthly automatic savings into a TFSA or savings account that you can draw from without a tax penalty. The uncertainty of 2020 has demonstrated the need for an emergency fund that can be used to help bridge the gap when there is a drop in monthly income. If that emergency fund is a line of credit, then during better times, that line of credit should be repaid or the debt can easily spiral out of control.
2. Avoid Credit Card Debt
Credit card debt is among the worst kind of debt out there. The interest rates on unpaid balances are typically between 15% and 20%, even though prime interest rates are at a historic low. If you find yourself in credit card debt, try to consolidate it under your mortgage payments or under a line of credit secured against your assets in order to get the lowest interest rates available. Do not fall for those easy loans or payday loans since the interest rates on those are just as bad as credit cards. Instead, talk to your bank or credit union directly and shop around for the best offer.
3. Beware the “Add to Cart” Button
Global online sales grew astronomically in 2020 as people stayed at home to isolate from Covid 19. Buying online is very simple and the selection is huge. It is quite easy to instantly satisfy a want and have the package arrive within hours or days without getting off the couch. Unfortunately, this easy access has encouraged a spending spree on everything from takeout food to pet toys. Instead of scanning Facebook or Amazon when bored at home, consider going for a walk or calling a friend. Trade “retail therapy” for a better kind of therapy that is less damaging to personal finances. See tip 5 for some ideas.
4. Track Your Spending
Your monthly spending won’t always be consistent, but there should be a typical average for base needs like food, housing, telephone/internet, and transportation. It is the extras that need watching. There are apps available like Mint developed by Intuit (the makers of Quickbooks) that will link to your credit card and bank transactions and automatically categorize them for you so you can see how much you spent in each category a month. Apps like this make monthly tracking and budgeting far less manual and time consuming. Consider using one of these apps if you are constantly wondering where your money is going.
5. Invest in Yourself and Your Skills
If, like many other people, you found yourself with lots of extra time in 2020, consider developing new skills, learning something new, and meeting your exercise targets. Not only will it help with the depression that tends to come with too much free time and social isolation, but it can open up future possibilities that you hadn’t considered. There are courses offered virtually for free or for low prices all over the place. Join a networking group or Toastmasters for some social interaction and to develop skills and contacts. Seize the opportunities available to you and take this time to consider what you want your life to look like.
If you would like help in getting sorted for 2021 and into a saving rhythm, reach out to me for a free initial consultation and put your goals into action!