I’ll try not to make this another one of “those” articles that’s simply complaining about the year we’ve had or offering platitudes, but it’s hard not to vent a little. This has been a difficult year for a multitude of reasons, but it’s also been a great time to reassess. So instead of focusing on the negative, let’s look at how lessons we’ve learned about ourselves in 2020 can help us establish goals for 2021 and beyond.
Spending Habit or Saving Habit?
First, let’s consider your budget. Most people, even most companies, have had to significantly adjust their budgets this year because some things are simply unavailable. Spending on travel has been delayed for most Americans, and dining out has slowed because of the combination of more people working from home and most restaurants having reduced capacity. There may be other things you’ve either shifted spending to or away from, and now’s a good time to consider if the areas you shifted spending away from are things you want to go back to spending on once life returns to a more normal semblance of pre-2020 life.
I have had a conversation with a couple of clients about the extra money hanging out in their checking account and how it feels good to have more cushion and more savings. The trick now is to figure out what changed and decide which is more important, the spending habit or the saving habit. This gets back to the question that is at the core of personal finance: which “you” needs the money more? Present-day you or future you?
Spending Cap for Pent-Up Spending
On the opposite side of this same equation, there’s bound to be some pent-up spending that you’ve just been putting off. It may be a large vacation that you’re waiting on, or maybe it’s an update to your wardrobe. Whatever the pent-up spending is, now is the perfect time to set a spending cap for it. It is really easy to “treat yourself” so much that you undo the great work you’ve done in the past. So instead of allowing your treat to turn sour, consider now how big of a treat you’d like, make sure it fits your budget, then enjoy guilt-free!
Setting Goals for 2021
After so much change to our daily lives in 2020 it can be hard to establish what seem like achievable goals for 2021. But that’s assuming life continues to change as swiftly as it has for the past year, when in all likelihood, coming changes won’t be as quick. Additionally, you don’t need to establish goals to completely turn your life around on a dime, that hardly ever works (how long do your New Year’s resolutions to work out every day usually last?). Instead, you should set an incremental goal. For instance, if you want to lose 30 pounds, why not set a goal to lose 5 pounds while eating a little healthier and working out just a little more. The first goal may be more life-altering if it sticks, but the later is more likely to stick and lead to the first goal actually becoming a reality.
With your finances I would encourage you to pick what feels like a small amount of money, it could $10, $25, $100, whatever feels right to you. Start saving that amount at the beginning of every month. After a couple of months if you haven’t raided your savings for regular living expenses, try increasing your savings just a little. This way you slowly work toward what a realistic savings goal is for you without feeling like you’re giving up things you love in your daily life.
What goals should you work toward?
Well, after this year I think it would be wise for everyone to work toward better emotional and physical health. So finding small ways to improve your state of mind and be more active would be a great start. Additionally, most Americans under-save for future goals. So, spend some time considering what exactly you would like to be able to do with your money in 5 years, 10 years, and beyond and then start considering what it will realistically take for you to accomplish those goals. If it’s something unrealistic (e.g., as much as I would like to, I will never own an apartment across the street from the Louvre), then you may have to consider how you can take steps toward the goal while having an open mind toward altering the goal a little (e.g., I could afford to have an apartment within walking distance of the Louvre).
After taking stock of where you’d like to be, take a look at where you are. If you would like to help your children attend an in-state public college, and you already have $100,000 saved toward that goal, your next steps look different than if you have $1,000 saved. So after figuring out where you are you can do some relatively simple math to determine what you need to meet your goal. You can find calculators online (I suggest finding a couple and checking answers on both as some aren’t terribly accurate) that will help you figure out how much you need to save every month to meet certain goals.
Don’t lose heart at this point; remember that the purpose is to know where you are and make progress toward where you want to be. It’s also helpful to know which goals may need to be adjusted at this point. Maybe Ivy League is outside the budget unless your student gets some major scholarships, but that doesn’t mean there aren’t some really great schools that could be affordable if you started saving now.
It’s also worth remembering that just because you’d like to accomplish a goal one way doesn’t mean that’s the only way to get there. My wife really wanted to pay for our first home with cash, but once we sat down and looked at exactly what that would take she was more than happy to take on a mortgage in order to have a house, but at the same time we’re working very hard at paying off our mortgage quickly.
Finally, please recognize that the purpose is to improve, not to be perfect. So taking small steps that actually stick is better than trying to change everything you do all at once.