2020 was an insane ride, and we are finally putting it behind our backs. When the clock strikes midnight on New Year’s Eve, we will all look forward to a better year, ideally free of quarantines, lockdowns, and worldwide torment.
It is safe to say we all share that one resolution.
But kicking off a new year is always a tremendous opportunity to set our intentions and plant the seeds towards a better lifestyle. Although we are all a bit scattered from 2020, fearing that our desires won’t be fulfilled because of another unpredictability, there is something worth thinking about: our personal finances.
After all, taking care of our money and financial habits never goes out of fashion, regardless of the circumstances.
After such an unusual year, it is safe to admit that most of us are worried about money. Due to the pandemic, many people lost their job, were laid off, or saw their small businesses struggle (or even close). As a result, all over the country, living conditions changed drastically for many.
According to CBC Canada, Canada lost almost two million jobs in April alone.
One in seven Canadian small businesses is currently at risk of closing, mainly in the bigger cities.
As if that wasn't enough, the pandemic is also pushing many low-income people into bankruptcy and even homelessness.
Considering how the world changed in the last months, compromising our financial safety in ways we could have never imagined, it is easy to understand why 2021 should be all about budgeting and reorganizing.
If that is on your to-do list for 2021 (let’s be honest: it has to be), you can’t miss this list of seven financial habits that we have prepared for you:
If you haven’t done so already, 2021 is as good a time as any to determine your earnings and spendings. After calculating those, setting a monthly budget should be a top priority.
Establishing a budget forces you to take a hard look at the money you have at the way you spend it, which is a necessary step to forge healthy financial habits.
According to NerdWallet, a good way to start this journey and organize your finances is to follow the 50/30/20 rule. According to it, 50% of your income should be for needs (rent, utilities, tuition, etc.), 30% to spur a bit on things you want, and 20% for savings and debt repayment. Developed by Elizabeth Warren, this method is known worldwide as one of the easiest and most effective ways to organize someone's fiances. And the best part is that you don't have to follow it perfectly for it to be effective!
If you have never followed a budget before, starting one can seem a bit daunting, even with a basic rule of thumb. But worry not: it is way easier than most people think, especially in our technologically advanced era. You might not be able to afford a financial manager (honestly: not many people are), but you can, for instance, download an app that conceptually does the same thing. In short, your mobile phone can be your manager, in the simplest and easiest way possible - not to mention affordable. For Canadians, financial apps like Mint, YNAB (You Need A Budget), KOHO, Wallet, or PocketGuard are great options to explore.
As you can guess, this comes hand-in-hand with having a budget and developing healthy financial habits. Start by pinpoint your spending habits by taking inventory of your accounts, including your checking accounts and credit cards. Many people start by tracking the more significant expenses, but it is just as important to pay attention to every (seemingly) small purchase. We often don’t realize how impulsive purchases or old subscriptions can have an immense impact on our monthly finances during our daily lives. If you track your spending, these won’t go unnoticed.
But tracking isn’t enough: you need to be ready to make adjustments. Once you realize you are having too many morning lattes, overly spending on a gym membership of which you don’t even make much use, or going a little too often to the shopping mall, maybe it is time to make some changes.
Cutting on extravagant and unnecessary things is a step towards having your finances in order. You might not realize it, but treating yourself to a coffee and bagel every day might cost you over $100 per month. That money could be used in a wiser way, like to pay off an old debt or establish an emergency fund.
When payday rolls around, we all feel the "urge" to lavish a little bit. Buy a top-notch bottle of french wine. Go out for dinner (imagining we will be able to do so eventually!). Rent a cozy cottage for the weekend. Or simply replace that old pair of jeans with something more in.
If you are trying to build an emergency fund, recuperate the savings you lost in 2020, or simply trying to accumulate some money on your piggy bank, prioritizing saving over spending is a must.
It might not be that easy, mainly if you are not accustomed to budgeting or controlling your personal finances. However, it is all about shifting around your spending priorities. New clothes or student debt? Saving for retirement or going one week in Mexico? In the end, these decisions are entirely up to you. If your goal is to save or build an emergency fund, you should start the month by paying your debts and taking care of your fixed expenses. Then, before spending money on things you don’t need, prioritize your saving account.
Paying off your debts is an important step in becoming financially healthy. We all know this year was tough and that Christmas time makes us spend more than what we should. But remember: paying off your debts should be a top priority as soon as January 1st hits the calendar. Old medical bills, personal loans, and even student loans - the sooner you get rid of these debts, the less money you will throw away on interest. And of course - the sooner you will be free to focus on other goals!
Yet, we all know that figuring out the best way to pay off debts is usually much harder than accumulating them. Debt reduction software is often confusing and tedious, and hiring a financial manager is not even an option for most people. Luckily you can, once again, rely on several apps to get the job done. The Debt Free app, which uses the debt snowball strategy, is an excellent option for iPhone owners. As an alternative, Mint is quite straightforward and robust. Finally, for those who struggle specifically with student loans, ChangEd app is the absolute best.
To stay on track of your finances, you must follow a simple rule: pay fast and buy slow. And by paying fast, we mean, evidently, to mind your credit score.
As you know, building a good credit history is key for your long term financial health. By having a good score, you can, for instance, have access to the best loans and interest rates. It is also a great plus when it comes to renting or buying a house (many landlords are using credit scores as part of their tenant screening process), and avoid security deposits.
Now the question is: how can you improve your credit score in 2021? There are plenty of ways, but it all comes down to these simple financial habits: pay your bills on time and in full (which may include setting up autopay), pay off old debts, limit how many new accounts you open, and try to keep unused credit cards open.
In the end, it is all about getting more involved with your personal finances. If you regularly check your credit and monitor your account balances, it will be easier to access what behaviours you need to change and improve. It might take time (in most cases, around three to six months), but it is quite worth it.
In this case, the future means something different for each person. For you, it can mean starting to save to send your kids to college in a few years. It can mean buying a new house and getting your mortgage approved. Or it can mean worrying about your senior years and all the expenses you might have after retirement. Either way, 2021 is as good a time as any to start planning for your future financial needs. To this end, developing healthy financial habits could mean opening a savings account, exploring the best retirement plans, or starting a registered education savings plan (RESPs) for the youngsters.
And if 2020 didn’t destroy your finances, the new year might represent an excellent opportunity for investments. Investing is one way to build wealth. Whether it is in the stock market or in real estate, it is a great instrument to make your money grow. A post-vaccine economy is about to rise, which may open many opportunities for investors that want to help rebuild a “normal life.” So if this is your 2021 goal, start researching your options. From investing in the leisure and hospitality sector (which predicts a big boom) to buying coronavirus vaccine stocks, the possibilities are endless.
If there is something 2020 did well, it was showing us how unpredictable life is. Along with that, it demonstrated how essential it is to guarantee the well-being of the people we love, especially in times of great financial uncertainty.
Considering that, life insurance seems like the type of investment we should also make in 2021. After all, having a life insurance policy gives us peace of mind, as it ensures that the people we care about will always be financially protected.
And the best part is that it doesn't have to be hard to obtain - or as expensive as most people believe. Nowadays, you can find insurance products tailored to all needs, budgets, and circumstances. Whether you have recently married, started a family, or began to think about organizing your final expenses, life insurance might put an end to your biggest worries.
Thanks to our many years of experience in the life insurance business, we have developed the term life plans Canadians want. Our policies are straightforward, easy to obtain, and affordable. So regardless of your needs, you can get the insurance plan you need, quickly and stress-free. We don't require medical exams, face-to-face meetings, or endless and tedious paperwork. You just need to be a Canadian resident between the ages of 18 to 70. And that’s it!
Part of developing healthy financial habits involves making sure that your loved ones will be fine no matter what life throws at them. With that in mind, if you wish to receive a free quote from us for your ideal term life insurance plan, you simply need to complete this quick form.
We would be happy to be part of your amazing (and financially responsible) 2021!
Written by Raquel Dias