As the new year rolls around, many of us have committed to making resolutions for 2021. Whether they be exercising more, cooking at home, or learning a new skill, they are likely to focus on the little ways you can improve your life.
Many of us, however, will neglect to think about our finances in the new year. Going through our finances isn’t an activity that most of us enjoy; it can often be a source of stress and confusion, and it can leave a bad taste in your mouth about your money matters (especially during a pandemic). Nonetheless, getting your finances in order can be the best resolution you make for 2021, and get you one important step further towards gaining all the financial knowledge you’ll need as an adult.
It can be confusing to know where exactly to start when organizing your finances. Therefore, I decided to talk to Jim Wang, a personal finance writer who has been featured in Forbes and the New York Times to learn some tips and tricks for getting your finances organized in 2021.
- Budgeting is crucial
Knowing exactly where your money is going and how much you are spending on your expenses is one of the few ways to move forward in your finances, says Wang. “If you maintain a budget, you’ll see where your money is going,” he explains — and from this, you can making decisions on whether to spend or save.
Setting up a budget can be as simple or in-depth as you like; you can use an app, such as PocketGuard, or a simple Excel spreadsheet or Word document to outline all your weekly/monthly expenses and your income. With this, you can see exactly where your money is going, where you can save money, and what you can do to improve your finances. Wang highlights that budgeting will show you “how that [spending] impacts your money.” Budgeting can identify “money leaks,” or small costs that can add up over the course of the year. Think about stuff like your unused TV subscriptions or a mobile phone plan that costs more than what you need.
Wang reminded me, though, that budgeting isn’t about restricting your spending or money; it is about being intentional in your spending. You get to decide if where your money is currently going is how you actually want to spend it, or if you would rather focus on other areas.
- Strengthen your finances right now
While the COVID-19 pandemic has been a big stressor for most of us financially, no matter how well we planned, Wang suggests that this time offers us the opportunity to “see where we can strengthen our processes.” Start by checking out your new monthly budget, your net worth, investments, and your emergency fund. Getting control of these initial steps in your finances allows you to understand exactly where you are financially and where things have gone wrong in the past year.
Even starting an emergency fund or preparing to implement one can put you in a better financial footing for a future outside of the pandemic. “Now’s not the time to make drastic decisions about your money, but it is a great time to get a better picture of it,” Wang says.
- Avoid debt at all costs
One of Wang’s financial tips for students is to avoid debt at all costs. Avoiding high-interest debt may be obvious to most due to the high amount of money you have to end up paying back. But Wang also states that student loans can be a trap due to the low interest but large loan that you can receive. “You can get so much of it so quickly that it’s easy to forget that it’s still a loan,” Wang says.
He recommends avoiding all debt if possible and that you instead try to pay for most expenses outright or from a source of income (i.e. a job, side business, or a loan from your parents). If that isn’t possible, Wang recommends ensuring you find a loan with the lowest interest possible, remembering that government loans are often high-interest and require a higher pay-off percentage as your wage increases. Try using comparison engines to find the best option for student loans for you or to refinance your student loan.
- Check your credit every year
An essential step in improving your finances for 2021 is to check your credit score. Wang says that you’ll want to check your credit every year to ensure that all your details are correct to avoid headaches in the future and to see if there are any ways to improve your score.
“Your credit will become extremely important after college,” he says. “It will be used by landlords, cell phone companies, banks, and many others to decide everything from whether to rent you an apartment to issuing a credit card.”
Therefore, he recommends doing everything you can now to improve your credit score. This can include paying your bills on time, paying off any debt, keeping the balance low on your credit cards, and disputing any errors you see on your credit reports. Treat your credit report like a social media account for your finances where you only want your best side to show!
Time to be the boss of your finances and make your money count this year with these tips! Managing your finances can be one of the harder parts of adulting, but keeping things simple with your money and knowing exactly where your money is going or being spent can ensure you get your bang for every buck!