Money tips for the new year: Here are 21 ways to reduce debt, build an emergency fund in 2021
Start the countdown: A new year is fast approaching. So now is the time to hatch a plan to get your personal finances back on track. Think of 2021 as a fresh start to solve your money worries.
Here are 21 tips – or must-do “money” resolutions for the New Year– to help you trim your debt and build up that crucial emergency savings fund in 2021.
Since most people need a substantial amount of money set aside to help ride out an unexpected financial setback, we’ll kick off this list of advice with some money-saving tips recommended by financial planners and advisors:
• Cut back on spending.
Just like slimming down your waist size is good for your health, trimming the fat in your monthly budget is a good way to bolster the health of your emergency fund. (Your goal? Build up six months of living expenses.)
But like a diet, that takes discipline.
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“Review every expense that you have and ask yourself, ‘Can I eliminate or reduce some of my expenses,’ ” says Philip Palumbo, founder and CEO of Palumbo Wealth Management. His pet spending peeve: dining out or ordering in. “It can add up quickly,” he says.
• Pay yourself first.
When payday comes, dollars tend to disappear quickly. So put your savings on autopilot. Set up automatic deposits that move money directly from your paycheck to your savings account, says Diahann Lassus, president of Lassus Wherley, part of Peapack Private Wealth Management. “Pay yourself first, before those dollars have a chance to disappear,” Lassus says.
• Rid yourself of “recurring” charges.
Scrutinize your credit card statement and identify and cancel any “recurring charges” for services you no longer use, such as magazine or video streaming subscriptions or weight-loss programs, says Cathy Curtis, founder and CEO of Curtis Financial Planning.
• Increase your insurance deductibles.
If you can afford the higher out-of-pocket costs in the event of a claim, consider increasing the deductible on your home and auto insurance policies. “Raising your auto insurance deductible from $500 to $1,000 can save you 13% on your auto premium,” says John Campbell, senior VP and senior wealth strategist at U.S. Bank Private Wealth Management. You can also save money by bundling policies, or having a number of different types of insurance policies, such as homeowners and auto, at the same carrier, he adds. It doesn’t hurt to shop around for a better deal around renewal time, either.
• Save your raise or bonus.
A windfall, such as a pay raise or bonus, is great. But if you spend it all, it’s not so great for your savings account. The fix? Don’t adjust your spending upwards to match your higher income stream, says Jeremy Staadeker, founding partner at The Staadeker Wealth Management Group. “When receiving a salary increase or other windfall consider prioritizing saving or paying down debt,” he says.
• Don’t wait till you have zero debt to save.
While debt is no doubt a bad four-letter word, putting off saving until you are debt-free is a mistake, says Matt Nadeau, a wealth adviser at Piershale Financial Group. Putting off saving, he says, means investors miss out on a key component of saving: time. Over time, your money has the ability to earn interest on prior interest, a concept known as compounding. Similarly, if you pay off debt instead of investing in your 401(k), you could also miss out on the matching employer contributions. “That’s free money,” Nadeau says.
•Save on stay-at-home.
Pandemic-related stay-at-home orders and related increases in the number of people working from home has resulted in many expenses that no longer need to be paid. For example, if you’re no longer paying commuting expenses or for meals out or for your annual overseas vacation, funnel those one-time expenses into savings, says Jeffrey Corliss, managing director and partner at RDM Financial Group at Hightower.