By Roberta L. Nestor
In years past, New Year’s resolutions have primarily revolved around our health. Whether that means increasing your fitness, weight loss or adding more meditation – resolutions to be healthier are number one. After a year like 2020, health has become even more important, but what about your financial health? According to “Fidelity’s 2021 Annual Resolutions” study, the top three financial resolutions were to save more money, pay down debt, and to spend less. Financial resolutions are gaining popularity and becoming a necessity.
The impact of COVID in 2020 has made its mark on people’s finances. More than two-thirds of Americans experienced a financial setback. From job loss, unexpected non-health emergencies, unexpected financial assistance for family and friends, and health emergencies, the myriad of problems seemed to pile on. Just how much impact did COVID have in 2020? Of the 68% that experienced a financial set-back last year: 23% lost a job or household income; 18% had to provide financial assistance to family or friends; 20% had an unexpected non-health emergency and 16% experienced a health emergency in their family.
Although those numbers give a grim outlook, 38% of Americans stated that they will be focused on the day-to-day as they try to get themselves through the new year. On a positive note, at least 72% expect they will be better off financially in 2021 than 2020. Individuals are motivated to make financial resolutions primarily for greater peace of mind, being able to live a debt-free life, eliminating financial worry due to unforeseen expenses and getting control of daily expenses. People want less stress and worries when it comes to money. So where to start?
Saving is key. Many Americans were able to bear the financial burdens of 2020 because they had a solid savings cushion. For 2021, you can arrange for automatic withdrawals from your checking account and have it placed into your savings every month. There are also several apps that can round up the cost on each purchase and save those extra cents. If all else fails, the old-fashioned way—putting all loose change and dollars in a jar—can be great way to save for a rainy day.
Budgeting is another great way to ensure you stick to your costs and put away what you can. Laying out monthly expenses ranging from bills to groceries and the allotted “fun” category, you can easily see where your money is going and how much you can save in the bank or even a retirement account. Even today, the typical rule is to have 3 to 6 months’ worth of essential expenses covered in savings. Now more than ever, it is crucial to have this financial safety net because we have all learned how disruptive life can be.
Once you have the near-future covered, then it is time to think far into the future. More Americans want to increase their annual retirement savings contributions—another easily accessible goal. It is a myth that you need to have a large amount to start retirement savings. Most investment plans have minimums as low as $50 a month for ROTH or traditional retirement plans. Systematic savings is painless and flexible. Over time, you can increase the amount you set aside each month. It all adds up. Also know that all retirement plans have special catch-up provisions once you are over age 50 and will allow you to put in more for retirement.
Getting rid of debt may soon become the most popular goal for the younger generations. There are two different ways you can tackle debt—one balance at a time or by the one with the highest interest rate. Either way, it’s important to put that into your budget. Even for baby-boomers, to get the most out of their retirement, they should work towards starting off that new-phase of life debt-free.
Resolutions are not meant to be done easily and quickly; they are something you have to work at each day. In Fidelity’s study, they found that 77% of people with a financial professional were able to stick to their financial resolutions in 2020 compared to those without a financial advisor (only 50% of them managed to stick to their goals). The other reasons for success: the joy of making progress, clear goals, and realistic resolutions meant for the long haul.
While no one can be certain what will happen in 2021, you can alleviate some of that worry by paying yourself first, stick to your plan and be prepared to adapt to unexpected changes. Many of us have heard about taking care of ourselves both physically and mentally, but we should also be thinking financially, too. Create Financial Resolutions for 2021 and make it your best financial year yet.
Roberta L. Nestor is a financial advisor practicing at 759 Boston Post Road in Milford, CT offering retirement, long term care, investment, and tax planning services. She offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network – a member FINRA/SIPC and a Registered Investment Adviser. Fixed insurance products offered through Nestor Financial Network are separate and unrelated to Commonwealth. Commonwealth Financial Network or Nestor Financial Network does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation. Roberta can be reached at Nestor Financial Network, 203-876-8066 or firstname.lastname@example.org.