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The end of a calendar year -- and the start of a new one -- is generally a good time to take a close look at your financial picture and figure out what's missing. As we gear up for 2021, here are a few important goals you may want to start working toward.
1. Complete your emergency fund
You never know when you might need your emergency fund. You could get stuck with a costly home repair, or your car could stop working out of the blue. Or, you could lose your job and need money to make up for your missing paycheck (unemployment benefits may not do a good job of replacing your lost wages). If you don't have at least three months' worth of living expenses tucked away in the bank, then one major goal for 2021 should be to accumulate at least that much in a savings account. Furthermore, due to the current economic crisis, you may want to aim a little higher than that -- say, have cash saved for four to six months of bills. In today's climate, you just never know.
To complete your emergency fund, start with creating a budget. Having one will clue you in as to how you're spending so you can find ways to cut back and stash any extra money in the bank.
2. Pay off unhealthy debt
Maybe you racked up some debt during the holidays that's coming with you into the new year. Or maybe your hours were cut earlier in the year, and you accumulated a balance on your credit cards that still needs to be paid off. Either way, the sooner you get rid of that debt, the less money you'll throw away on interest, so come up with a payoff plan that's easy to follow. That plan could involve doing a balance transfer so you pay a lower interest rate on your debt, or consolidating via a personal loan.
Of course, if you have quite a bit of debt, you may not manage to pay it off in a couple of months. It could, in fact, take all of 2021 to get rid of it, but if you follow that budget to eke out savings, you may get to enjoy the feeling of shaking bad debt for good.
3. Open a retirement account
Your senior years are not going to pay for themselves. Rather, you'll need money on hand to cover your expenses and supplement your Social Security benefits -- whatever they happen to look like by the time your retirement rolls around. That's why it's so important to set funds aside in an IRA or 401(k).
Of course, your immediate savings needs should trump your long-term savings, so if you're without a complete emergency fund, that should take priority. Similarly, it pays to get out of credit card debt and then focus on building a nest egg. Once you've met those goals, you can take that monthly savings in your budget and divert it to a retirement plan so you'll be set later in life. And as a bonus, if you fund a traditional IRA or 401(k), you'll lower your 2021 tax bill.
It's too soon to know what 2021 has in store. Will the U.S. economy recover? Will the pandemic end? We just don't know. But rather than focus on things you can't control, work on the ones you do have the power to change. If you budget wisely, live frugally, and spend minimally, there's a good chance you'll close out 2021 in a stronger financial position than when you started.