Make 2021 your best year yet by doing these three things.
No matter how much money you have, you probably feel like you could use something more, especially after the 2020 dumpster fire. But knowing you want more money and how to get it are two very different things. If you want to turn those idle hopes into a workable plan this year, follow these steps.
1. Create a budget and stick to it
A budget is an essential tool in keeping your expenses in line and increasing your savings towards your personal goals. Budgets can feel restrictive, but they don’t have to be. It is actually a good idea to bookmark some cash for activities you enjoy, as it will increase the likelihood that you will be on budget.
The first step in creating a solid budget is to capture all of your significant expenses. Monthly bills are easy to identify. However, look at your most recent bank and credit card statements for quarterly or annual payments that you received again. Make a note of this as well. Then make a list of your savings goals and the deadlines for those goals. This is a great way to find out how much to save per month.
Subtract each of these expenses from your monthly income, starting with your essential expenses. If you are unable to pay all of your bills with your current income, consider cutting down your non-essential expenses, examining financial assistance programs, or starting a sideline (we’ll talk more about these below).
If keeping up with your budget sounds boring, get a budgeting app that will track it for you. This will save you some math and give you feedback on how you are doing. You may also be able to set up automated bill payments and savings transfers from your bank account to save even more time.
2. Set up (or rebuild) your emergency fund
If you don’t already have an emergency fund or have used up yours during the pandemic, your number one financial goal should be to rebuild it. It’s up to you to decide how much to keep there, but you should try to save at least three months on the cost of living, and more if you want an extra pillow. If you have high deductible health insurance, you should also make sure that your emergency fund has at least enough to cover your deductible, unless you are saving for it in a health insurance account.
Start saving in a high-yield savings account on a regular basis once you know how much you need. It’s a bad idea to invest your emergency fund because you never know when you will need it. You could be forced to sell your investments at a bad time and end up costing yourself money.
Remember to replenish your emergency fund every time you dive into it so you are ready for the next emergency. Recalculate your emergency fund every year or every time you experience a big change in life such as: For example, when you start a new job or have a child, to make sure you’ve always saved enough.
3. Start a sideline
Whether or not you have a steady job, a sideline is a great way to bring in extra cash, develop new skills and connections, and possibly turn one of your hobbies into your own business. If you are concerned about the pandemic, check out some of the sideline activities that you can do from home. There are many options online these days, especially for tech-savvy users.
You can decide how much you want to work and how much you want to charge for your services. However, it is best to stick to a regular schedule and keep your prices reasonable based on your level of experience and competitive fees.
Don’t forget to set aside some of your extra income for the government or you might get a surprise at tax time. If you are unsure of how much to save, you can use this IRS tax form to find out how much you will owe.
While playing on a lottery ticket may be more fun, your most likely path to wealth will require careful planning, hard work, and responsible money management. The tips above can get you moving in the right direction, but don’t stop there. Be on the lookout for ways to save on your running expenses, pay off your debt already paid, and check into yourself every few months to make sure you’re sticking to your budget.