Good Riddance 2020. Start 2021 Off Right Financially With These 7 Small Changes

Chris Ladd, CFP®, CCFC

I think it's safe to say that few people will be sad to see 2020 come to an end. With only one month left, everyone is ready to put the year behind us and try to start fresh. From the coronavirus pandemic to economic shut downs, many have felt the financial strain. If you are looking to start 2021 off on a better financial note, these seven moves will help make your year less stressful. 

Financial Move #1: Spend Smartly

Make your 2021 mantra an easy one: spend less, reduce stress. Before you make a purchase, ask yourself "will this actually improve the quality of my life?" If the answer is no or, if it will just add clutter to your home, then skip the purchase. There's a reason "Tidying Up with Marie Kondo" was so popular on Netflix last year!

You can start small, by doing things such as:

  • Cut down your streaming subscriptions to one or two at a time
  • Reduce spending on new clothes that often just sit in your closet
  • Checking for a less expensive phone plan
  • Waiting a few days and really considering each purchase to limit impulse spending 

The above things can become a lifestyle change and something that you can implement into your everyday life. 

Financial Move #2: Reduce Debt

Reducing, and eventually eliminating, your credit card debt can relieve an immense amount of financial stress. Start by paying off the credit cards that have the highest interest rate before working your way down the line to lower interest loans. Making small changes can start becoming more of a lifestyle, making it easier to reduce your overall debt. 

Financial Move #3: Track Expenses

If you track exactly where your money is going, it will give you a greater idea of where your overall financial picture stands. Simply understanding where your money is going can help you to really own it, which in turn, can start to reduce financial stress. Mint provides a great free budgeting tool to get started. Change starts with knowledge. Understanding your spending habits is the first step to improving them.

Financial Move #4: Trade “Stuff” for Experiences

While experiences often still cost money, research shows that people enjoy experiences more than possessions, so this is a great way to make better use of your money. Rather than buying a new outfit for yourself or a physical gift for someone, you could spend your money on:

  • Cooking classes 
  • Traveling (eventually, in a post-covid-19 world)
  • Art classes
  • Spending more time with friends and family

Whatever the experience may be, this will prevent stress and burnout while providing you with happy memories.

Financial Move #5: Read Financial Success Stories 

Simply reading success stories is a great way to change your mindset when it comes to a healthier financial lifestyle. Reading about people who have been in your situation and were able to pay off debt, start earning more money, or just overcome some type of financial hardship, can help you can become inspired and start to implement these tactics into your own life. 

Financial Move #6: Create an Emergency Fund

If there was ever a year to help us understand the importance of an emergency fund, it was 2020. While in the middle of a financially difficult situation is not the ideal time to start an emergency fund, if you are able to put aside additional funds, it will help reduce your financial stress. If you have more income coming in than going out each month, set aside a fixed amount at the beginning of each month, before you have a chance to spend it on non-essentials. The balance will grow over time, and you will have an emergency fund for unexpected expenses, such as house or car repairs, an unexpected job loss, or healthcare costs.

Financial Move #7: Start a Spending Plan

Once you’ve worked diligently to reduce debt and build an emergency fund, start a spending plan, also known as a budget. When you do this, you’ll need to track your income while making a plan for all that you are earning. You can prioritize your spending once you have allocated the funds to cover expenses. This will help reduce your financial anxiety as you spend money while staying on track.

The key to turning changes into habits? Start small and be consistent. Most often big changes happen from an accumulation of small changes that become habits. As we prepare for 2021, keep these tips in mind to help reduce financial stress and make the upcoming year a financial success for yourself.

If you've already incorporated several of these changes into your regular routine, have a look at our 5 Tips to Begin Effectively Managing Your Finances article to see some next steps to take control of your financial life.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

By Chris Ladd, CFP®, CCFC

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