Five Financial Resolutions for 2021 by Scott Gray, CPA, CMA
The 2020-2021 financial year is upon us and now is the perfect time to start planning your financial strategy for the year ahead.
Good intentions are in ample supply at this time of year. The key to making meaningful changes is to focus on the fundamental aspects of your financial life and follow through on the plans you make.
Here are our top five New Year’s financial resolutions that you can make right now, so you will be in a better position next year.
Resolution 1: Review Household Spending
There is a constant tug-of-war between spending money and saving. A detailed budget can be the most valuable tool you have for managing your finances. If you find yourself regularly overspending, the beginning of the year is a great time to look at where your money keeps going. It may start by establishing a spending cap for each month.
List your total income from any earnings, allowances, and investments. Add in all your weekly, monthly, and annual expenses, including the costs to repay any debts like credit cards or your home loan. That way, you will know how much you have left over each month for extras – or where you might need to tighten your belt. You want at least three-to-six months of expenses covered by your emergency fund. And do not forget that the cost of living goes up every year. So, when you are reviewing your annual budget, be sure to allow for inflation. That way you will be able to absorb any shocks if the costs of your utilities, groceries or other expenses go up next year.
Resolution 2: Manage Debts
Clearing your debts might be easier said than done – but whatever you do, do not stop chipping away at them. Remember, the longer your debts stay with you, the more you will have to spend on interest.
Resolution 3: Improve Cash Flow
Even if you budgeted carefully in 2019-2020, did you find it challenging to keep up with your regular expenses? If you found yourself living from one pay cheque to the next, it might be time to take a look at your incomings and outgoings to see if there’s a way to smooth out your cash flow.
When you are looking for ways to achieve a healthier bank balance, it is always a good idea to think outside the box. For instance, if your kids have flown the nest, is your home larger than what you really need these days? Next year could be the year you downsize – freeing up some cash that you can use to pay off debts and invest for the future.
Resolution 4: Start Saving
Once you have got your cash flow and debts sorted, it’s much easier to create a realistic savings plan and stick to it. To stay motivated, remind yourself that every bit you put away adds up and could make an enormous difference in the long run.
Resolution 5: Focus on the Future
By getting your finances under control for 2020/2021, you will be in a better position to start thinking about your future long-term investment strategy.
Scott Gray, CPA, CMA leads a full-service accounting practice offering a broad range of accounting services to meet the needs of businesses, entrepreneurs, and individuals in Oakville, Burlington, and surrounding areas. They will work with your finances to look at major differences between actual versus forecasted, and provide feedback and/or comments on areas of improvement.