The beginning of the year is a great time to review your budget and savings goal. In January we all get our W2, 1099, or K1 with a review of how much we’ve made the year before. That amount serves as a good starting point even if you don’t have a fixed income to determine your potential income for the year. In this process here are few great steps you can take to plan your finances for 2021.
Set a Budget and Savings Goal
The beginning of the year is a great time to review your budget and savings goals. Start by getting your W2, 1099 or K1 with a review of how much you’ve made the year before. That amount serves as a good starting point even if you don’t have a fixed income to determine your potential income for the year.
In this process, here are few great steps to take
Review your monthly expenses
Cancel unnecessary subscriptions
Identify areas where you would like to spend less and set a new budget for the category
Review your cashflow. How much money is showing should be left over after your expenses are paid?
Set a savings goal and pay yourself first with automatic transfers to savings
Review your budget and progress at least quarterly to gauge progress and make necessary adjustments
Emergency Funds
Are you ready for unexpected emergencies? Whether it be a medical emergency, car or home repair, or loss of income, life happens, and as they say, “when it rains it pours.” Make sure that you have 3-6 months of expenses easily accessible in an emergency fund. If you are a single earner for your household, 6 months should be your minimum emergency savings goal. Your local bank may not be paying much interest these days, but some online savings account offer 10 to 20 times the amount of interest offered by local bank branches. Having an emergency fund can also help protect you from slipping into a cycle of bad high-interest debt that you are forced to surrender to pay for those unexpected events.
Eliminate Bad Debt
This one is as important as a savings goal because bad debt is proven to be the highest party crasher to our savings potential. You will find yourself paying up to thousands of dollars in interest if you are not getting rid of your high-interest debt. Rates are at historic lows for the beginning of 2021 and now is a good time to see where you can reduce your interest rates on things such as Mortgages, Student Loans, Personal Loans, Car Loans, and even credit cards.
Get Your Taxes Done Early
Before you know it, we’ll be in April. Far too many people wait until the deadline to start getting tax documents together. Giving yourself time to plan and review can help avoid stress and also discover issues that can still be fixed. You’ll also avoid potential penalties and interest from the IRS by getting your taxes done on time. Besides, doing your taxes early will allow you to gauge how much you will owe or be receiving in refunds. This will allow you to make the proper adjustments to your deductions. It’s a win-win!
Contributions to Retirement Accounts
If you have a retirement account, review your retirement account performance and talk to a financial advisor to review the progress compared to market returns. You also want to get projections to see if you are on track with your retirement goals. Many custodians offer this option and talk to them to get help look at projections. Always try to contribute enough to at least get the full match from your company, if they offer that option. That represents an immediate 100% return on your money or 50% if they only match half. In some cases, it may pay to contribute to a Roth IRA as well which can have great tax benefits at retirement rather than immediately.
Review options for increasing income
If one of your goals for the year is to make more money review different options where you could potentially earn more in 2021. Feed your passion! Whether it be baking, remodeling, gardening, etc see you can sell a product or service in your local area or even online. Many are adding to their household income by selling their goods or services online on platforms like eBay, Amazon, Etsy, Offerup, Craigslist, and more. Other ideas can include renting additional rooms in your home short-term via services like Airbnb or long-term to locals. Renting a car that is mostly parked in your driveway with a service like Turo can also help generate extra income. Or maybe simply getting another part-time job is of interest to you. The bottom line is that if you want to make more money, nowadays there are hundreds of options out there, the key is to start!
Consider Investing
If you have the appetite for it, investing in real estate or securities like bonds, mutual funds and stocks can be rewarding although there are some risk factors. Do your homework, take some classes, or use online resources to learn about investing. You can also talk to a local advisor to discuss getting help with managing your investments.
At Dream Cap Investments, we want to help our clients build their wealth in the most efficient way possible. Get in touch with one of our advisors by calling 1-888-DREAM today.