LAST REVIEWED Dec 18 2020 5 MIN READ
Financial wellness is more than simply spending and saving. It includes a person’s relationship with money as well as their stage of life and financial goals. Here are 10 steps to take to get your finances in top shape in 2021.
1. Find one thing (no matter how small) to trim from your budget
The latte gets a lot of flak as an item that younger people should consider trimming from their budget. For you, it may not be that, but tightening our budget even just a little bit can feel like a good step in the right direction and give you momentum moving forward. Any unused subscription? Anything related to commuting that you’re no longer using?
2. Rebuild your emergency fund
Many of us have faced unemployment, reduced hours, or ailing loved ones as a result of the pandemic. If you’re in that group, there’s a good chance you dipped into your emergency savings (or maybe even long-term savings for retirement). Now is the time to rebuild your reserves. Don’t have any emergency funds? Time to start. Set aside small amounts each week until you have one month of expenses set aside. Then build to three months, six months, and so on.
3. Get ready to give
Charitable giving is a priority for millions of Americans, and between illness, job loss, wildfires, and hurricanes, there are a lot of people and organizations looking for help. Do you plan to make any donations around the holiday season or before the end of the year? If you itemize your taxes, a contribution is deductible in the year in which it is paid.
4. Look ahead to retirement
There are a few steps here.
First, if you have a 401(k) or other retirement savings plan through work, will you be able to max it out this year, or ensure that you’re not leaving any employer match on the table? If you can’t stretch that far, can you increase what you’re contributing by 1%? (Read more about employer matches here.)
Second, if you have investments, rebalance your portfolio — if you have a Human Interest account we do this automatically for you every quarter (unless you elect to direct and manage your own investment portfolio in a Human Interest account, in which you are responsible for rebalancing). Rebalancing a portfolio is an investment strategy to help maintain your desired mix of stocks and bonds, which can, over time, deviate from the plan you set out with as the market changes and some investments outperform others.
Third, something to consider if you have multiple 401(k)s: you can consolidate accounts to make it easier to track what you have saved up for retirement.
To figure out what that will mean for you in retirement, divide your annual salary by 240 to get a ballpark monthly income (that’s 12 months a year x 20 years of retirement if you expect to live to age 85). For example, if you have $100,000 in retirement savings, you’re looking at $417 a month.
If you’ve aced everything above, read more about the differences between a Roth 401(k) and a Traditional 401(k).
5. Look at family ties
79% of parents provide adult children with financial support, and many children provide their parents with financial support, too. It extends both ways, but if you do provide financial help, discuss what that support should look like going forward. Review your ability to provide that support over the next year or whether you need to revise that plan.
6. Get a head start on taxes
Gather tax-related documents, including those related to donations, such as anything you donated during the election season, as well as those that support FSA or HSA purchases. If you took on work in the gig economy or as an independent contractor this year, look into prepaying your taxes (in the form of quarterly estimated tax payments).
7. Review your debt
Something remarkable happened in the first half of 2020: Consumers paid off a lot of their debt, a collective $60 billion in Q1 and $58 billion in Q2. If you still have debt, look up the interest rate on each and confirm that you’re focused on paying off the one with the highest interest rate first. To make it easier, set yourself up with autopay so you don’t have to remember to make every payment on time to avoid late fees (which can add up fast!).
8. Talk about it
The upcoming holiday season is a time when we reconnect with loved ones and it can be a good time to engage on topics related to money. Yes, this can be hard, but here are three questions you can start with to help guide you:
Do you have emergency savings? This isn’t just a topic to explore alone! Ask your loved one, what would you do if faced with an emergency, such as a car repair, a lost job, a big medical bill, etc.?
How did your 2020 impact your financial situation? This year, millions of American families experienced significant changes regarding work, home, and school. Check with loved ones about anything concerning them or even a financial goal they’ve shifted as a result.
Have you named beneficiaries? When there are a lot of life changes, it’s a good practice to review beneficiaries. Ask your loved one if they have a beneficiary assigned on every account, which can help ensure that if anything were to happen to them, their assets would be passed on quickly (this can help some assets avoid getting stuck in probate) and clearly (without any confusion about who should receive the inheritance).
9. Your financial wellness at work
Review your employee benefits and identify what you are missing out on. The pandemic has forced employers to closely examine the benefits they offer to employees. In response to changing employee needs, many are expanding health benefits, including those that support physical, mental, social, and financial health of their employees. Ask your employer what they offer and review for opportunities you might not be using, including tax-advantaged ways to save for retirement, such as a 401(k); training and financial education; an HSA or FSA; new health-related coverage, including additional benefits, mental health, ergonomic tools for working at home as well as life insurance, disability, and more.
10. Set a savings goal
Are you saving for a house, for college, or another big purchase in the next year? If so, what amount do you need to set aside each week to reach your goal? Ensure that amount is built into your budget so that you have a set amount of money going towards this every week (or month). If you don’t have a budget, it’s time to make one.
The Human Interest Team
We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment education, and integration with leading payroll providers.