‘Tis the season for New Year’s resolutions.  While losing weight and eating healthier usually top the list of New Year’s resolutions, we want to offer up three simple financial resolutions for 2021 that are easy to attain.

1. Establish an Emergency Fund – 2020 brought us numerous surprises and taught many of us the value of planning for what-ifs. Establishing an emergency fund, outside of your investment portfolio, can help ease the pain of life’s unknowns such as a medical emergency or loss of a job.  As we wrote about at the onset of the COVID-19 pandemic, if these unfortunate events happen at the same time your portfolio is experiencing a decline, it can have a lasting effect on your overall financial health.

So how much should you have in your emergency fund?  As with anything the answer is, “it depends”.  The rule of thumb is to have 3 to 6 months of expenses set aside in cash.  However, this amount could vary based on the stability of your income, the number of earners in your household, and your overall comfort level with the amount of cash you like to keep set aside.

If having 3 to 6 months of expenses set aside in cash sounds daunting, or if you are just starting out, then set a more realistic target for yourself in 2021.  Target accumulating enough in a savings account to cover 2 months of mortgage or rent payments or perhaps enough to cover your health insurance deductible.  This can make the goal of establishing an emergency fund more attainable over the next year.  Once you reach your emergency fund goal for 2021, you can perhaps set your next target as 3 months of living expenses by the end of 2022.

2. Fund Your Retirement – what is your largest debt? Most people cite their mortgage.  However, as we wrote about in “How much do you need to retire”, a recent survey revealed that, on average, Americans think they will need around $1.9 million to retire.  Compare this to recent data from Experian which found the average mortgage balance among Americans to be $215,655.  Mortgage debt, especially if you have refinanced recently with today’s low rates, is inexpensive debt that is often accompanied by tax advantages.

All this to say, do not forget about the debt to yourself.  Funding your retirement can be one of the largest “debts” you will have to pay off.  The specific amount you will need to save will vary and depend on things such as your goals, target retirement date, and portfolio.  In 2021, your focus should be balancing out paying your various debts, including your retirement debt, and not just focusing on paying off one single debt versus another one.

If you have not begun saving for retirement (a.k.a your largest debt), a little bit can go a long way.  No amount is too small to begin saving, and even $100 a month can add up over time.  If you have been putting back money in your retirement accounts, try increasing your savings this year, even if it is only by that $100 a month.  If your employer offers a 401(k) plan you can try to increase your savings rate by 1%.  If you are currently enrolled to save 5% of your salary, try increasing this contribution to 6% in 2021 and 7% in 2022.

If you are already maxing out your 401(k), there are other ways you can steer money towards your retirement.  Do not limit yourself to maxing out your employer retirement plan.  Again, a little bit goes a long way.  The earlier you start, the better off you will be.

3. Create a Comprehensive Plan – any good New Year’s resolution will include a plan of attack. Have you ever achieved one of your New Year’s resolutions before?  If you have, you probably had a plan at the beginning of the year and had someone making sure you stuck to that plan.  If your resolutions quickly sputtered in the past, I bet it was because of a lack of a plan, as well as a lack of an accountability partner.  Achieving any financial resolution, no matter how big or small is no different.  Partnering with an advisor can help you create a plan to not only achieve your 2021 resolutions but also help create a game plan to achieve your long-term financial goals.  As with any goals, not only do you need a plan, but you also need to make sure you are executing that plan and sticking to it, even when it feels uncomfortable.  These are all things that a good advisor can provide.

Not too many will shed a tear over the end of 2020.  The COVID-19 pandemic and ensuing economic fallout may have taken your focus off your personal finances over the past year.  However, 2021 is upon us, and now is the time to get your finances on track.  Setting financial resolutions for yourself, creating a plan to achieve them, and sticking to your plan can help ensure you achieve your goals in 2021 and beyond.  If you need help setting financial goals, creating a plan to achieve them, or need help sticking to that plan, please contact us today!

Author: Brett Fry

Brett rejoined Forteris Wealth Management in 2020 and is managing our office in Dallas, TX.  While helping clients plan for retirement, education and generational asset transfers, Brett's expertise in portfolio management, managing concentrated stock positions, planning for the sale of a business, and helping young professionals accumulate wealth enables him to guide clients through their continuously changing financial decisions.