How many times have you made a number of New Yearâs resolutions â only to forget about them long before spring?
The trick to making New Yearâs resolutions is to choose those that are actually doable. And a good place to start is with your finances.
To explore feasible financial moves that are easy to stick to, we got advice from Bankrate Chief Financial Analyst Greg McBride, CFA.
Use these tips to set yourself up for financial success in 2021.
10 financial resolutions for 2021
- Set financial goals
- Create or freshen up your budget
- Check your progress on paying down debt
- Review your credit card benefits and reward offers
- Review your asset allocation and rebalance your portfolio
- Consider converting your traditional IRA to a Roth
- Review your beneficiaries
- Review your savings
- Check your credit report
- Continue to educate yourself
1. Set financial goals
Before you dive into your finances, make sure you know what you hope to accomplish this year. According to Women & Financial Wellness: Beyond the Bottom Line from Merrill Lynch, âSeventy-seven percent of women say they see money in terms of what it can do for their families.â By figuring out what is most important to you, you can create specific priorities and goals.
Do you hope to pay off your credit cards or are you saving for a down payment on a house? Or do you see yourself purchasing a new car this year? Map out your goals so itâs easier to see why you need to create a budget.
2. Create or freshen up your budget
Youâve heard that you need to create a budget a million times. Why? Because itâs one of the healthiest financial moves youâll ever make.
Particularly after 2020, when many faced unemployment, 2021 is a good time to figure out where your money is going by tracking your spending against a budget.
âMake a monthly budget for 2021 and resolve to track your spending against it throughout the year,â McBride said. âAny month you spend less than budgeted, transfer the difference into savings.â
As daunting as it may seem, a budget will provide long-term benefits, both financial and mental.
Mint, Goodbudget and You Need a Budget (YNAB) are all good options. But whichever tool you pick, make sure to:
- Give your money a purpose by bucketing it into specific funds or accounts.
- Be patient as you settle into a budgeting routine.
- Schedule a âmoney meetingâ with yourself every month and examine your spending, make tweaks and congratulate yourself for the work youâve done.
See related: How to create a budget that works for you
3. Check your progress on paying down debt
McBride congratulates those who have made steady progress in paying down their debt and recommends making a plan to pay it down in 2021 (if youâve stalled a bit in 2020).
You can temporarily cut your expenses and throw that money toward your debt, or, if you have high-interest debt, consider debt consolidation, McBride said.
A nonprofit credit counseling agency can set you up with a debt management plan that will even likely lower your interest rate.
In addition, you might want to pick up a side hustle and use that money to pay down your debt.
TheÂ average credit card interest rate is still around 16%, and thatâs still a high rate, particularly if you carry a balance.
âCredit card debt is the most expensive debt most households have, so put some urgency behind the efforts to get these balances paid off,â McBride said. âPaying down a 16% credit card balance is a risk-free return of 16% â at a time when savings accounts and government bonds pay less than 1%.â
There are many strategies you can use to pay off your credit card debt, but a good guideline is to first pay off the debt with the highest interest rate.
See related: How to pay off credit card debt â 3 best strategies
4. Review your credit card benefits and reward offers
Credit card issuers have responded toward consumer spending changes as a result of the pandemic by adding new benefits and rewards bonusesÂ to their credit card products.
Donât miss out on those perks, such as extra cash back on groceries and food deliveries, streaming services and more.
See related: Best cash back credit cards
5. Review your asset allocation and rebalance your portfolio
The stock market has been particularly volatile in 2020 so you should review your mix of investments in 2021.
âTaking the opportunity to rebalance back to your intended mix of stocks, bonds, cash and alternative investments means lightening up on things that have done well while adding to asset classes that have lagged,â McBride said. âThis also enforces the discipline of âbuying lowâ and âselling high.ââ
âTravelers have been largely sidelined in 2020, but credit card rewards have very much been on the move,â McBride said. âCheck your cards and make sure youâre aware of category spending payouts that have changed and are using the right card for those expenditures.â
See related: Investing tips for women: Overcoming financial setbacks for future success
6. Consider converting your traditional IRA to a Roth
If you lost income in 2020, McBride suggested maybe taking advantage of your lower tax bracket to convert some of your traditional IRA into aÂ Roth IRA.
âBe advised that converting will trigger taxes on any contributions not already taxed, so be sure to consult your tax adviser,â McBride cautioned.
If you earn too much to contribute to a Roth IRA, consider a âback-doorâ Roth conversion.
âIf youâre unable to contribute to a Roth IRA directly because of your income, you may benefit from contributing to a traditional IRA, then converting the funds to a Roth IRA,â McBride says.
âIf you have an existing traditional IRA, be sure to consult your tax adviser about the tax implications before converting anything,â he added.
7. Review your beneficiaries
Many people designate beneficiaries and forget about it but itâs important that your assets go to whom you want, so review yours for 2021. McBride said to keep in mind that beneficiaries trump wills, so make sure the two documents are aligned in their directives.
âIf you havenât looked at it in a while or especially if there has been a change in family dynamics such as a marriage or divorce,Â review the beneficiary designationÂ on your life insurance and retirement accounts to make sure it reflects your current intentions,â McBride said.
8. Review your savings
Having savings is important in the event of an emergency. If you had to exhaust your savings during 2020, youâre not alone. But in 2021, make a plan to replenish and grow your savings account.
âAdd up the amount youâve contributed to your retirement accounts, 529 college savings plans, savings accounts and other investment accounts and subtract out any withdrawals taken during the year.â McBride said.
How much emergency fund should I have?
9. Check your credit report
You should check your credit report routinely to see if there are any mistakes on it that happen to be affecting your credit score â or, worst-case scenario, to see if youâve been the victim of identity theft.
âRegularly checking your credit report is a great way to spot errors or evidence of identity theft,â McBride said. âKnowing what is on your credit report and that everything is correct is important when going to apply for a loan, rent an apartment or even changing insurance carriers.â
AnnualCreditReport.com provides consumers with a free credit report annually, so make sure you take advantage of that in 2021 so you can catch (and fix) any errors early.
See related: Credit cards that offer free credit scores
10. Continue to educate yourself
Learn the ins and outs of your own financial picture – even as it relates to the fine print. Find places where you can make tweaks or by gaining a better understanding of your taxable income, your investments, your insurance products, etc.
Some great financial literature to get you started includes âClever Girl Finance: Ditch debt, save money and build real wealthâ by Bola Sokunbi, the founder of Clever Girl Finance and a Certified Financial Education Instructor (CFEI). The book is an accessible personal finance book written specifically for women.
Another piece of literature worth looking into is âLive Richer Challenge: Learn how to budget, save, get out of debt, improve your credit and invest in 36 daysâ (which comes with accompanying resources) by Tiffany Aliche, better known as The Budgetnista. An award-winning teacher of financial education, Aliche has been featured on “Queer Eye” and, through her company, has created a financial movement that has helped over 800,000 women worldwide collectively save more than $100 million.
Free resources are also available to you as you make your way through your personal finance journey. The American Association of University Women (AAUW) offers tools and resources to help women bridge issues like the wage gap.
As you make your way through 2021, donât put too much pressure on yourself when it comes to your finances. Use the tools available to you and make a plan that you can easily follow. By adding personal finances to your 2021 resolutions, youâre setting yourself up for success!