As 2020 draws to a close, it is time to think about the financial goals you made in January. With the unpredictability that marked the year due to the pandemic, you won’t be alone if you find that your resolutions, financial or otherwise, didn’t go according to plan.
With this in mind, 2021 calls for us to do things a little differently. With proper planning, 2021 might be a year of financial recovery and growth. Here are a few tips to help you approach 2021 with courage and hope:
Revise your budget
The pandemic has taught us the importance of having a budget. A budget enables you to live within your means and have money to save and invest. The changes brought by the pandemic also changed the way people spend money all over the world.
With travel restrictions and social distancing rules, people aren’t spending as much on travelling and leisure activities such as eating out, clubbing or gym membership. You might have also started working from home instead of commuting to the office every day. You need to refresh your budget to reflect the shift in your lifestyle.
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Allocate the funds you’d have used for commuting, travelling, or clubbing to paying off debt, saving, or investing. By allocating this “extra” money to a specific purpose rather than just using it for your everyday bills, you will put yourself on track to achieving your long-term financial goals even faster.
Plan for uncertainty
At the beginning of 2020, no one could have predicted how much the world would shift in a few short months. With the pandemic not yet resolved, we’re going into 2021 with more questions than answers when it comes to coronavirus and its financial impact. To adequately prepare for a prosperous year, the first step is to recognise that things might not go according to plan.
If you don’t have an emergency fund, you definitely need to set it up as soon as possible. You should aim to have at least three months, worth of expenses saved up in case of emergencies. This will help you have a smoother time in case of more layoffs, business losses or illness.
Plan for these three potential scenarios: base case, equity case, and debt case. Base case is where you plan based on what you know today. This plan assumes that conditions will remain relatively stable.
The second scenario, equity case, is more optimistic. It assumes the economy will bounce back quickly than predicted. Having this scenario accounted for in your plans will allow you to quickly capitalise on new opportunities for financial growth.
The debt case scenario accounts for when things go wrong. Planning with this in mind will help you in the possibility of deeper recession. Think of how to reprioritise your investments and reallocate capital in worst case scenario.
Consider increasing your income
Relying on one source of income, whether it is from your business or employment might prove to be your undoing if things go awry in your industry. Going into the new year, think of ways to increase your income and establishing multiple income streams.
A good place to start is by requesting for a pay raise or a promotion at work. During your annual evaluation, highlight all the major responsibilities you’ve taken up during the year. If you have achieved goals that your supervisor had set for you, it is definitely the right time to ask for a raise or a promotion.
Explore new income streams such as blogging, writing an online course, investing in real estate, or having a side hustle. Ideally, the extra money you get from additional income streams or a raise should go towards your long-term financial goals such as retirement, children’s college fund or buying a home.
Declutter your life
To have a less financially stressful time in 2021, you need to get rid of anything that isn’t working for you. This includes clutter in your house or office, toxic relationships, junk food, or negative money attitudes.
Getting rid of things don’t add value to your life gives you more time and space for what you’re trying to achieve – financially and otherwise.
A lot of the “clutter” you’re holding onto has direct on indirect connection to your finances. For instance, a bad relationship leaves you so drained that you’re not able to pursue your financial goals. By letting go of that relationship, you will notice immediate improvement in your emotional wellbeing and ultimately your finances.
It’s time to also let go of bad investments that don’t show any promise of improvement. It is better to cut your losses early than continue throwing good money after bad. Take the insights you’ve gained from the failure and fail forward.
Automate your life
In today’s digital world, make your life easier by automating your personal finances. Automate bills, savings, paying off debts, and investments. You can automate most bills through your bank or the online portal of the company you’re paying. This ensures that you don’t miss payments and never have to pay late fees.
Automating your savings means that the money is taken directly from your main account into a saving account as soon as you get paid. This way, you will be less tempted to direct your savings money to other purposes. This will make it easier to stick to your budget and achieve your financial goals.