Is one of your resolutions this year to improve your finances in some way? There are many factors involved in achieving those goals. I wanted to make it as easy as possible for you to get started on your financial journey, so I put together this list of 7 things for you to do for a prosperous 2021.
1) Set up a High-Yield Savings Account
One of the most important financial accounts you can have is a high-yield savings account. With it you can manage your money while it grows through the power of compound interest. I link my high-yield savings account to my checking account and have my paycheck direct deposited for easy access. I recommend Ally Bank or CapitalOne 360, which both offer free high interest savings accounts with easy access and high reliability.
2) Track Your Money
Everyone should have a very good idea of where his money is going. You can subscribe to a rigid zero based budget, or you can be a little more fluid with your money. But you still need to know where it goes. There are many great tools available
3) Make a Will or Estate Plan
What happens when you die? Who will take care of your children, pets, bills, property,
etc.? Unless you have an estate plan, there will be a lot of guesswork and frustration on the part of your survivors. You should decide how your assets are distributed after you die, not the state. Creating a will makes life easier for your survivors. You can create an estate plan with the assistance of an attorney, or with an online legal document preparation service such as Legal Zoom.
4) Obtain Sufficient Insurance
Insurance is there to protect you in case you can’t afford to pay for certain expenses as they arise. Generally you get insurance for items that are expensive. You will need
many types of insurance.
Here are a few of the essentials:
5) Improve Your Credit Score
Your credit score is very valuable. Your credit score affects your ability to get a loan, the interest rate you receive, your ability to get a cell phone contract, and possibly even your ability to get a job or security clearance. Here are tips on how to understand your credit score and how to improve your credit score.
I recommend starting the process by getting up to date on all your loan
payments. Late payments have a massive negative impact on your credit score.
The next thing to do is work on your credit utilization, which is the amount of
available credit you are using. For example if you have a credit card with a
$10,000 balance and you have a $1,000 balance, you are using 10% of your
available credit on that card. Your credit utilization applies across all your credit
accounts, and the lower, the better.
6) Decision Calculators
Should you finance a large purchase or save cash for it? (Hint the answer will always be save, but seeing the numbers will give you a jolt into the right direction!) For example using both a time value of money calculator and an amortization calculator you can clearly see the difference between financing a $165,000 home over 30 years and saving up to pay cash for it over 10 years. If you can’t see the difference, check out how to figure it out here. Look into re-financing options whether with your home mortgage or auto loan, re-financing can
7) Invest in Your Future
Start a Emergency fund. If 2020 has taught us anything, it’s expect the unexpected.
Although we sometimes can’t predict hardships, being prepared n case of a crisis can
make things much easier. Start with a goal you can afford – like $100 your first
month. And as you start earning more active or passive income, start increasing your goal to $500 a month to $500 bi-weekly and so forth. If you’ve overspent on credit and a high credit card bill comes up, don’t use your emergency fund – focus on taking up more active income opportunities so you can pay it down faster. The emergency fund is only for unplanned emergencies ONLY. Be disciplined.
I hope you found this list helpful. Let me know in the comments below what your financial goals are for 2021.