2020 is a year most Minnesotans would prefer to forget. When the year started, nobody expected natural disasters of historic proportion, the COVID-19 pandemic, or the residual economic hardships that followed. Now that the first year of the new decade is officially behind us how can residents in the Minneapolis/St. Paul area better prepare their finances for whatever 2021 may bring? Our seven suggestions are below
Vow #1: Thou Shalt... Establish an Emergency Fund
If 2020 taught us anything, it’s the importance of preparing for the unexpected. Establishing an emergency fund is crucial when it comes to being financially ready for medical emergencies, house repairs, car maintenance, etc.
Money tucked away in an emergency fund is meant to help cover the costs that are not part of your normal monthly expenses. Without an emergency fund, any unexpected event, even a small one, could set you back significantly. While you may not be able to put the same amount away every month, every little bit helps, and it’s important to put aside what you can.
The Consumer Finance Protection Bureau recommends a few simple strategies for establishing and adding to your emergency fund:1
- Create a savings habit
- Manage your cash flow
- Take advantage of any additional money coming in
- Automate your savings
Create a Savings Habit
Try to be as consistent as possible when putting away money.
To turn your ability to save money into a regular habit, you could try:
- Setting a specific goal for yourself and your savings
- Creating a system for making consistent contributions
- Monitoring your progress
- Rewarding yourself for meeting your goals (within reason) before setting new ones
Manage your Cash Flow
Keep track of how and when money is coming in, as well as how much is going out.
Take Advantage of Additional Money Coming In
If you get a bonus at work or receive a monetary gift, consider putting that extra cash towards your emergency savings. This is a great time to either get ahead or catch up if you were not able to contribute as much as you would have liked another month.
Automate Your Savings
Establish automatic transfers through your bank, which will allow money to be directed to your savings account automatically each month. Choose an amount, pick a date each month and adjust as you need throughout the year.
Vow #2: Thou Shalt... Save More Money
You’ve heard the phrase, “Every little bit counts,” all your life - but it couldn’t be more true. If you enjoy grabbing a coffee before work, start making a pot at home. If you go out to eat twice a week, cut down to once a week or every other week. Many of us are continuing to work from home, which cuts down on the need to buy as many clothes for work, which is another way to save.
While it’s an adjustment, these small “sacrifices” can yield significant results over time. Say you skip eating out one day a week, saving you around $20 on average. In the span of a year, that $20 becomes $1,040.
Vow #3: Thou Shalt… Review Your Tax Situation
With tax season approaching, there are a couple of things you could consider doing now to maximize the financial impact of your tax refund. For example, you may find it more beneficial to have your refund split between paychecks throughout the year. To do this, you would need to adjust your tax withholdings with your employer. Now’s an ideal time to speak with your financial advisor, CPA or other financial professional to discuss what changes you should be making now to get the most out of your tax situation for the coming year.
Vow #4: Thou Shalt... Set Goals
Ask yourself what you want to accomplish in the months to come. Is there a certain amount you’d like to have tucked away in your savings? Or maybe you’re focused on getting a promotion at work? Whatever it may be, set a specific (and attainable) goal that you can focus on working towards in 2021.
In a world where we’re all recovering from economic and environmental hurdles, progress is worth celebrating - and worth pursuing.
Vow #5: Thou Shalt... Start Automating
Automation is an incredibly effective tool when it comes to working toward and achieving your financial goals.
Some things to consider automating include:
- Bill paying
- Loans (Your mortgage, student loans, car payments, etc.)
Automating as much of your financial life as you can takes the human connection and decision-making out of the picture. It cuts down on late payments, and it can make contributing to your savings account hassle-free.
Vow #6: Thou Shalt... Remember Your Retirement Savings
In terms of saving, 2020 had a different impact for everyone. Many Minnesotans lost their jobs, which impeded their ability to grow their retirement savings. For others, 2020 was an opportunity to sock more away than usual, since big expenses like vacations, concerts, weekend trips, etc. were canceled.
With enough stashed away in your emergency fund, 2021 may be the year to focus on padding your savings for retirement. If you have a 401(k), 403(b) or IRA, ask your financial advisor if you’re adding enough to it or if you should be upping your contributions each month. If you haven’t reached your contribution limits by the end of the year, consider making additional contributions - maybe from an end-of-year bonus or other additional income.
Vow #7: Thou Shalt... Watch Out For Identity Theft
There has been a rise in identity theft during the coronavirus pandemic, meaning you need to remain vigilant in protecting your finances throughout 2021.
Some ways to avoid being a victim of fraud include:
- Asking questions before sharing personal information with others
- Creating complex passwords and changing them often
- Keeping track of your mail
- Reviewing all bank and credit card statements regularly
- Monitoring your credit reports
All of us in Minnesota are hoping for a better 2021, however, it’s always best to be prepared especially when it comes to your finances. These seven tips should help with the transition into a new year - hopefully, all of us can breathe a little easier, save for the future and have some fun.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.