There’s no denying the impact COVID-19 has had on people financially. With millions laid off and stay-at-home orders coming back into effect, the economy has taken an unprecedented hit. People are unsure about their financial future, and unfortunately, a lot still remains unknown.
With a vaccine on the horizon, however, the end of the pandemic is in sight. Now is the time to buckle down and start thinking about the future of your finances.
2020 may have been hard, but 2021 has the potential to be even harder if you don’t prepare properly. If you’ve survived the pandemic financially, that means you’ve already got the basics like debit card management and on-time debt payments down.
Here are the next steps you should considering taking in the coming year:
1. Consider Moving Somewhere Cheaper
As of February 2020, 4.7 million of the population worked from home. That number has skyrocketed in recent months as more and more employees work remotely due to the coronavirus pandemic. Businesses are now realizing they can succeed with virtual offices, and because of that, employees don’t need to be tied down to one location anymore.
According to a GoBankingRates study, there are some American cities such as San Francisco where average rent is well over $3,000. If you’re struggling to save money and find financial freedom, it might be due to where you live. Ask your company about their flexible work offerings, or look for jobs that have remote work specifically advertised. Fewer people are tied to one place than ever before, and it’s time to take advantage of that financially.
2. Be Careful With Credit Cards
Credit cards allow for easy, seamless spending on essential goods, and responsible credit card usage can even help boost your credit score. If you’re not careful about your spending habits, though, credit cards can do far more harm than good.
During this pandemic, many people have had to borrow money in order to stay afloat. While credit cards can act as a safety net, you’ll eventually have to pay that money back. And the longer you wait, the more it’ll impact your credit score and your bank account.
Does that mean you should avoid using your credit card? No! Debit cards won’t build your credit score, even if you run your card as credit.
As the new year approaches, it’s important to make sure you’re following best practices with your credit card. Spend well below your credit limit, don’t keep too many cards active at once, and always make your payments on time. Even one late payment could hurt your credit score and incur onerous fees. When you pay your bill, try to pay off your balance in full.
Credit cards are convenient and useful, just as long as you’re spending within your means.
3. Start Saving For Retirement
With so much going on these last few months, the last thing you’re probably thinking about right now is saving for retirement. According to American Savings Statistics, 69% of American adults have less than $1,000 in their savings account. Some people are under the misconception they have plenty of time to start saving for retirement — a misconception that can have serious consequences in the long run.
Because of the nature of compound interest, retirement funds, and investments, a dollar saved today is worth more than a dollar saved a year from now. COVID-19 has shown just how unstable the job market can be, so extra effort should be made to save money when you are gainfully employed.
Another issue people often run into is how much to save over time. There are a number of different schools of thought on this, but a good rule of thumb is to have one year’s salary saved by the time you’re 30, followed by two year’s salary by the time you’re 35, and so on.
4. Automate Your Savings
Plenty of people want to save more but can’t seem to bring themselves to do so. If that sounds like you, consider automating your savings. Similar to how you set up auto-pay for your bills, you can have money pulled from your account and moved into your savings.
There are a number of different platforms that can do this for you. One of these apps, Albert, analyzes your income and spending habits before deciding how much money you can safely save each month. Once decided, it automatically transfers that amount into your savings account on a regular basis.
Employers also give you the option of dividing your paycheck into different amounts upon deposit. If you want a certain percentage automatically put into your savings, you can request that. Moreover, some banks even have automated cash dispersal you can implement; ask yours if there’s any way you can funnel some of your regular deposits directly into savings.
5. Pay Down Your Debt
This probably sounds like a no-brainer to you: If you have debt, chances are you know how important it is to pay off that debt. Even so, not everyone makes paying their debt a main priority. Even with the economy in a state of flux, paying off debt is just as important as ever before.
There’s no better time than the new year to assess your finances and create a budget that makes it easier to allocate funds to debt. Just make sure you’re being strategic. For example, you can use the avalanche method where you pay off your highest debt first, followed by the second-highest, and so on. Alternatively, you could try the snowball method where you pay off your smallest loan first.
Debt that goes unpaid will only grow and hurt your financial standing more over time. Making a clear strategy for eliminating debts in 2021 should be the cornerstone of any good financial plan, one that you can put into action immediately.
There’s no shortage of ways to manage money effectively in the coming year. It’s not about choosing the most stringent options or getting the most advanced apps; it’s about finding what works for you and sticking with it.