At the beginning of each year, like clockwork, personal finance pundits tell Americans how to make the most of their money. It’s usually a great time to capitalize on New Year’s resolutions by reinforcing the basics:
- budget your expenses
- pay yourself first
- have an emergency fund
- put your savings to work for retirement
This year looks quite different with the pandemic and widespread social disorder, making the usual personal finance advice seem antiquated, if not condescending.
The irony is that many Americans ended 2020 financially healthier, according to the Financial Health Network. For those with jobs that enabled them to safely work from home with no disruption to income, money was saved on commuting, travel, and dining out—so savings increased and debt decreased.
For far too many, however, the opposite is true. People across the country and economic spectrum have been impacted in unimaginable ways, with the most vulnerable among us being impacted the most. In the face of mass layoffs, illness, and untimely deaths—the often taboo areas of personal finance are more important than ever to talk about.
Regardless of where you are on the income spectrum, there are a few things to consider to bring some control to personal finances, even in chaotic times.
Know your data
Knowledge is power. For too long, too many people have been disconnected from their finances. Take a moment to map out your finances and spend time with the numbers—putting aside guilt, shame, and “what ifs.” If the past year has taught us anything, it’s to not take anything for granted. So create your 2021 baseline, and set goals from there.
Where to start? Make sure you can access each of your financial accounts—bank accounts, credit cards, and investments. This includes knowing your login information and passwords for each account and having them readily accessible. If you personally can’t access your information—regardless of whether you share access with a partner or others—make this your “new” New Year’s Resolution.
From there, check your balances on a weekly/monthly basis, understand how much is coming in and how much is going out. There is power in mapping out where you are today and where you want to be. Set simple measurable goals that provide little wins each day, month, or year. This can be as small as a goal to increase your savings by $100 this month or putting aside an extra $20 from each paycheck.
Review big and small decisions
Once you have mapped out your finances, think about what changes you can realistically make. One of the most important things to understand is the ‘what do I really need’ number for your expenses. From worst-case scenario planning of your minimum number to positive outcomes like how to allocate newfound savings.
One place to start: your ongoing ‘fixed’ expenses like subscriptions. Do you know how many subscription services you’ve signed up for? From streaming services to clothing boxes to meal plans and workout regimens, you may be surprised by how many subscriptions are charging you a monthly fee.
Take a look and cancel those subscriptions that you’re not using or those that you accidentally signed up for twice. This could save you upwards of $50 a month. It may take a few minutes, but it’s worth it.
Dining out and meal delivery services like GrubHub and Doordash are another place where small changes could make a significant impact on your finances. Take a look at the last 30 to 60 days and add up how much you spent eating out. You’ll likely be surprised. Cutting out one or two restaurant meals a month could save you $30-40 a month or $400-500 a year, and that’s being conservative.
Get into the habit of justifying monthly financial decisions versus continuing them because that’s what you’ve always done. You will hopefully find that there’s more flexibility in your finances that can help weather financial storms and make you financially stronger.
Protect your family
Once you know where you are, you now know what you need to protect. Buying life insurance—or augmenting what you have—may seem like a bleak way to kick off the new year, but it is an act of love for the people you care about. A policy can cost as little as your monthly streaming cost. Not as entertaining, but significantly more rewarding.
The spouse of a friend of mine recently passed away unexpectedly. Unfortunately, their life insurance had lapsed (it was tied to a job that, thanks to the pandemic, had also lapsed) and my friend was left without the necessary funds to pay off the expenses of a last-minute funeral, medical costs, and current living expenses. Invest as little as $10 or $15 a month in life insurance, even if you have it through your current job, to protect your family and their future.
2020 was a tough year, but there is a lot to be hopeful for in 2021. Knowing your data, rethinking your decisions, and investing in your loved ones are ways you can take on the chaos and bring more financial control into your life.