If 2020 hasn’t been your year, it’s time to start fresh in 2021 and recommit to achieving Important Financial Resolutions. While that may mean something different from person to person, having control of and confidence in how you manage your money is a pathway to peace of mind.
An investment in setting and achieving financial goals is an investment in your future, wellbeing and general happiness. If you’re not sure where to start, here are five Important Financial Resolutions worth considering for your 2021 plan:
1. Diversify your financial portfolio.
Ultimately, the goal of expanding your financial portfolio—or your full collection of financial assets—is about reducing risk. “Diversification does not guarantee better returns or fewer losses,” shared Scott Cohen, CEO of CD Wealth Management. “It’s simply a technique that can help you reach your long term financial goals.”
Basic strategies to begin with could include owning stocks and bonds, investing in mutual funds, investing abroad or using asset allocation funds (predetermined mix of stocks and bonds). Before taking the first step, you’ll want to go through an extensive research process, relying on the support of trusted advisors and financial experts to make the right decisions. Keep in mind, diversifying where your money lives is a long-term stability plan; you won’t see results overnight, but you’ll experience the benefits over your lifetime.
2. Invest in insurance.
Insurance can often feel like an extra cost; if you’re not using it right now, why should you pay for it? While the short-term benefit may not be clear, when an emergency arises, you’ll be grateful for your investment. Medical costs from an unexpected illness or death can devastate financial stability, and it’s important to protect yourself and your loved ones against these costs. Of the various insurance options, make sure to invest in life insurance as a key player in your retirement and long-term care planning. In this case, the longer you wait, the higher your rates may become—so don’t delay locking in your coverage now.
3. Plan for your retirement.
According to the US Employee Benefits Security Administration, only 40 percent of Americans have accurately calculated how much money they need to save for retirement and planned accordingly. If you want to decrease your financial stress in the future, you need to create plans to build wealth now. For those who are new to retirement planning, you’ll want to begin with the following initiatives:
- Start a savings plan that accounts for roughly 70 to 90 percent of your pre-retirement income.
- Contribute regularly to your employer’s 401K retirement plan, taking advantage of matching programs.
- Avoid using your retirement savings to supplement large purchases.
- Invest in an Individual Retirement Account (IRA) to automatically deduct additional income from your paychecks.
If some of these terms are unfamiliar, it’s okay. Reach out to an advisor if you have additional questions or leverage free online resources to help you establish your individual goals.
4. Create opportunities for passive income.
In order to build passive income, you need to think about opportunities to increase your wealth beyond your regular paycheck. This can include a variety of things like:
- Digital Content: Write or design content that can be purchased by other users online. This could include an informational ebook, branding support kit or design templates.
- Rental Income: Income from rental properties or renting space within your own home is one of the best ways to make money in the background of your day-to-day routine. If you’re unable to take on the additional responsibilities of property management, consider hiring a partner firm to help you manage the space(s).
- Affiliate Marketing: If you have a popular social platform or blog, consider posting marketing ads from digital partners and earning commission based on clicks.
- App Development: Have a special skill or tool that you think others would be interested in? While it may cost money on the front-end, developing an app is a great example of a product that once built, requires minimal upkeep and can yield a high return.
While brainstorming your additional sources of income may take some time, it’s well worth the investment. “You’ll catch more fish with multiple lines in the water,” shared Greg McBride, CFA at Bankrate. “In addition to the earned income generated from your human capital, rental properties, income-producing securities and business ventures are a great way to diversify your income stream.”
5. Prioritize your debt.
As a final tip, we recommend getting smarter about how you pay off your debt. Whether you have car payments, student loans or credit debt, it’s important to focus your efforts on paying off the amounts with the highest level of interest first. Consider refinancing your loans if you have good credit and regular income, making biweekly payments on those loans to reduce the amount of interest paid overtime.
Remember, Important Financial Resolutions isn’t achieved overnight—each of these goals takes time, effort and consistency to see results. Don’t feel like you have to do all of these Important Financial Resolutions at once, either. Instead, pick one area of focus and include additional goals over time as you feel comfortable.