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If the past year has left your finances in a chaotic state, the new year is the perfect time for a fresh start. But money planning for 2021 isn’t just an essential part of financial recovery, it’s also a blueprint for financial growth. Here’s how to money plan your way to a financially fruitful 2021.

Every new year is a time of fresh beginnings and hopeful resolutions, especially in the area of personal finance. The excessive spending of the holiday season often means it’s time to get your finances in order when January comes around.

But the pandemic of 2020 has impacted many people’s finances more severely than in normal years, making it more important than ever to plan their finances carefully for 2021.

There’s hope that the situation is on the turn and that 2021 will be a much kinder year for both health and money. Here’s how to money plan for 2021 to help put you in a much better position one year from now.

Set Your Goals

The key to successful money planning for 2021 is to decide your financial goals in detail before you begin. Do you want to pay down some of the extra debt built up through the pandemic and holidays? Streamline your outgoing expenses to better handle a change in income? Build up a savings cushion?

Write down your goals as specifically as you can, so that your plan can be tailored precisely towards reaching them.

Check Your Credit Score

Another tip to money plan for 2021 is to examine your credit status {see my $0 credit score} and make improvements if necessary. Excellent credit is an essential baseline to good financial health. By checking your credit regularly, you can know which future borrowing options may be available to you as part of your long-term plans.

If your credit score is less than perfect, now is the time to do what you can to improve it. Doing this may help to open up new options and potentially reduce your current borrowing costs. Here are three credit tips to consider.

Check for errors. Review your credit report for any errors or inaccuracies, and dispute them for your best chance at having them removed.

Reduce your credit utilization. If your credit card debt has grown in 2020, explore ways to reduce your overall utilization rate to boost your score. Paying down your balance is always a good idea. But if that’s not possible, requesting a credit limit increase can also be effective.

Monitor your credit. Thanks to the increase in online communications and transactions caused by the lockdowns, consumers are likely at a higher risk for digital crimes. By monitoring your credit, you can identify and address fraudulent activity before it grows into a bigger issue.

At first glance, the credit tips above can feel overwhelming. But using ScoreShuttle, you can do it all in just a few clicks. See your $0 credit score and start your mission to better credit in 2021 using ScoreShuttle.

Draw Up Your Budget

The next step in money planning for 2021 is to write down a complete list of your income, outgoing expenses, and debts. Be realistic about your income, especially if it’s been affected by the pandemic. There’s hope that things may start getting back to near-normal in 2021, but don’t count on your income necessarily returning to previous levels. Draw up your budget for what you can realistically rely on earning now, even if you hope your situation will improve over the next few months.

For each of your outgoing expenses, decide if it’s an essential expense you can’t live without such as housing or if it’s a discretionary cost you could cut back on if necessary.

For your debts, list their overall amounts along with their minimum monthly payments. Then order them from the most expensive to the least.

Pay Down Debt

When money planning for 2021, paying down debt is another great goal to set. List your minimum monthly payments as essential outgoing expenses. Then add extra lines in your budget for any additional payments you could make as optional expenses. 

Focus your discretionary payments on the balances which are costing you the most each month, and which would show the quickest benefits from being paid down more quickly.

Plan for Savings: Pay Yourself First

Similarly, if you’re aiming to put aside some savings for 2021, include a bare minimum amount as an essential cost in your budget.

Setting a minimum is important. If you leave it until the end of each month to put away a part of whatever’s leftover, you’re likely to save much less than if you treat savings as a cost to pay as soon as you receive your paycheck. This tactic is known as paying yourself first and is an effective route toward quicker savings.

Balance Your Budget

Now that you’ve got your financial details set out on paper, it’s time to balance your budget. Add up all your essential expenses and subtract the total from your overall income. If you’re left with a negative figure, you have two choices:

1.) Look at ways of reducing your essential expenses, such as refinancing large debts, downsizing your car, or searching for cheaper insurance.

2.) Look at ways to increase your income, such as a part-time job or a side hustle.

If you’re left with a little extra cash after your essentials have been paid, start adding in your discretionary expenses such as extra savings, extra debt repayments, or a few of life’s little luxuries.

Continue adding back your non-essential spending until your budget is nearly balanced. It’s a good idea to leave a little slack rather than allocating all your income, especially in the current uncertain times. Any cash you have leftover can be saved to build up a buffer for whatever the coming months might hold.

It’s been a uniquely difficult year in most areas of life, and personal finance is no exception. But by money planning for 2021 carefully you’ll help ensure you’re in much better financial shape twelve months from now.

Disclaimer: ScoreShuttle is not a financial advisory firm and does not give financial advice. Always be sure to do your own research and speak to your personal financial advisor to find the best financial options for you.