If your New Year’s resolution is to save money, you’re not alone. Many people choose budgeting and saving as their top resolution. But before you can make progress on new goals, you need to know where you are. What’s working right now? And what’s not?
This quick and easy financial planning review takes just 15 minutes to work through and will help you get clarity on your finances, so you can start 2021 right with a savings resolution that works for you.
1. Do a Five-Minute Review of the Past Year
Take stock of 2020 at a glance. Consider these questions and be honest with yourself: did you set any goals at the start of the year? If so, did you meet them? It’s safe to say that 2020 was a tough year for everyone, and a lot of people were trying to get by financially. If that sounds like you, give yourself credit just for getting to this point.
However, this is also a good opportunity to consider why you didn’t reach your goals. Maybe your hours were cut, or you got laid off. If you’re a freelancer or gig worker, perhaps your clients reduced their budgets and that hurt your income.
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Those circumstances are largely out of your control, of course. But consider whether there’s anything you can do to prepare for the unexpected in the new year, such as starting an emergency savings fund, marketing your services more aggressively or launching a side gig to build up your cash reserves.
On the other hand, maybe your income remained steady throughout the year, but you still fell short of your goals. There’s no need to be overly critical of yourself. Just take quick stock of what happened. Did you stop following your budget? Were you impulse-spending because of stress? Were you too overwhelmed to open that investment account? If being stressed or overwhelmed negatively impacted your financial progress, take a minute to do a quick brainstorm of more helpful coping mechanisms you can use in 2021.
2. Revise Your Budget for 2021
If you haven’t kept a budget for 2020, don’t worry. You can still do this exercise. Start by jotting down all the monthly expenses you can think of along with their estimated costs. Include costs like:
- Gas or public transportation passes
- Insurance premiums
- Rent and mortgage payments (It may be a good time to consider refinancing or calculating your savings with a refi.)
- Recurring subscriptions (such as gym memberships, streaming services, meal delivery kits, etc.)
- Take-out or restaurant meals
Then look over the list and see if there’s anything you can cut in the new year. Maybe you don’t use a particular music streaming service as much as you’d like, or the meal delivery plan you’re on hasn’t been fulfilling your cravings. Trimming out any low-hanging fruit will help you start saving before the new year even begins.
You can complete the budget portion of your New Year financial checkup in about five minutes. But you may want to take a deeper dive into your spending once the holidays abate. In addition to creating a monthly budget, you may want to forecast some of the bigger expenses you have coming up later in the year.
You may not anticipate doing much traveling during the winter and spring, but are you hoping to visit family in the summer? Are you planning a significant life change, like buying a house or having a baby in late 2021? Set up a calendar event for a weekend in January when you can map out any big expenses and build a monthly savings goal into your budget.
If you’re currently in a low-income job, it’s still worth creating a budget. Budgeting will help you manage your finances and give you a path for making your earnings go farther, even if you are living on a low income.
3. Brainstorm Ways to Save Money in 2021
The first step toward saving money is cutting non-essentials from your budget. But there are other ways to reduce your spending and boost your savings as well, especially if you’re willing to get creative.
Set a timer for two minutes and see how many ideas you can come up with for saving money in 2021. As a bonus, make an inspiration list of all the adventures you can do with your savings, such as planning an epic post-COVID vacation or building an emergency fund. Creating a list can help you change your habits and make progress toward your goals.
Here are a few saving strategies to consider:
- Sell unused furniture, clothes, books and electronics and put the proceeds into savings.
- Buy generic instead of brand-name grocery items.
- Shop for your groceries based on what’s on sale each week.
- Make a plan and start cooking at home.
- Have game or movie nights at home rather than going out and spending money on entertainment.
- Purchase secondhand clothes, furniture, books and electronics instead of paying full price for new items.
- Bundle your insurance policies to save money on your monthly premiums. Over time, you may be able to save hundreds of dollars if you take the time to compare auto insurance quotes with your renters or homeowners insurance quotes.
- Consolidate your loans or credit card debt to reduce the amount of interest you pay each month.
Coming up with ways to save money in the new year can support non-financial goals for 2021 as well. For instance, if you want to eat healthier, then choosing to cook at home more often will help you save money and steer clear of foods you want to avoid. If you’re committed to reducing your spending and environmental footprint, then buying secondhand clothes and furniture aligns with both goals.
4. Set Money Resolutions for the New Year
Spend the remaining three minutes of your check-in setting your financial resolutions for 2021. Consider what you want to achieve this year and personalize these goals so you’ll be motivated to stick with them.
Don’t worry about what your friends’ or relatives’ money resolutions are. You may have different goals. You might be determined to fully fund your emergency savings account (experts recommend having three to six months of expenses in an easily-accessible account). At the same time, someone else wants to max out their annual IRA contributions.
Whatever resolutions you set, make them your own. And even though this checkup only takes 15 minutes, it’s important to build these types of reviews into your year. You may want to review your spending once a week or check in on your budget at the end of each month. Perhaps a quarterly progress review would help you stay on track with your big-picture money resolutions.
Figure out what works for you, and set calendar events and reminders so you don’t forget important milestones. Meeting your financial goals requires focus and consistency, and creating events around them can help keep them fresh in your mind.
Casey Morris is a finance and tech journalist who covers personal finance for MoneyGeek. She has written for Forbes Asia, The Christian Science Monitor, The Washington Post and a number of finance publications and institutions. Morris is a graduate of Columbia Journalism School.
Featured Image Credit: adamkaz.