The challenging events during the COVID pandemic forced many people to radically change how they viewed and handled their finances. It’s been a time of hardship for many, but it’s also been a time of renewed focus on taking charge of how our money is spent.
Here’s a look at 10 money skills you should continue to use or implement in 2021 to reach your financial goals.
1. Make your finances personal
Personal finance is personal. I repeat, personal finance is personal. The pandemic gave plenty of people time and a platform (TikTok and other social media channels) to share financial advice — good and bad. With so many people struggling financially, sharing financial advice is a great way to help, as long as you know what you’re talking about and understand that everyone’s situation is different.
Your family, friends, coworkers, social media influencers, and even MU30 have ideas for how you should manage your money. You might even receive great advice that could revolutionize your finances. You could also receive horribly bad advice or advice that works for others but doesn’t make sense for you.
Your number one money goal is to devise your own money plan or strategy going forward this year. Yes, listen to the advice you hear from others (especially your loved ones, so you don’t get in trouble), but you also need to learn to glean the good advice and leave behind strategies that don’t fit your personality or financial situation. Nobody knows your finances better than you, so make this the year that you take charge and do money on your terms.
Now is your chance to reset and decide what’s important to you. Take time to write down or record what you value in life, your priorities, and design a money plan that fits what you want to get out of life.
This might take some work, especially if you have mounting bills, student loans, or other debt to care for first. Having a plan, though, allows you to tell your money what to do instead of letting it control you.
2. Track your spending
When budgets get tight, you need to have a clear grasp on every dollar. One of the best ways to figure out where your money is going is to start tracking your spending. Tons of budgeting apps can give you a detailed look at where you are spending the most. You can also use bank and credit statements and a notebook (or spreadsheet) to track expenses.
Tracking your spending is one of the most revealing ways to understand your finances. When you track your spending, you:
- Discover negative spending habits.
- Find holes in your budget where you’re spending too much.
- Uncover wasted spending on monthly services you don’t use.
Start by looking back at the last three months of expenses. Line up your spending next to your budget (if you don’t have one, make one) to see if you’re spending more than you budgeted in specific categories or expenses. You can then adjust your spending or how much you budget based on your needs going forward.
3. Learn to budget
After tracking your expenses, you’ll have a more realistic view of how to budget your money. Many people who had never budgeted before the pandemic realized that they needed a better plan for their money. The reality is that budgets can often free you from making poor financial choices and put your money to good use on things you enjoy.
If you’ve had a hard time making your budget stick in the past, you’re not alone. I write about budgeting almost daily, and I still struggle with it.
Budgets typically fail because we don’t set well-defined goals for our money. Whether you’re trying to pay off debt or save for a new car, you need to set specific goals so you can plan accordingly. Otherwise, unplanned, spontaneous, and emotional spending might take over.
4. Keep banking online
Digital banking has been a way of life for many people for a while, but the coronavirus pandemic accelerated its use in general.
Online banking gives consumers a way to manage their money safely from their home or elsewhere through online access and mobile banking apps. There’s no contact or large crowds when you bank online.
Besides safety, online banks offer perks you can’t find at your local bank. Traditional brick-and-mortar banks have more overhead costs like bank staff, buildings, and utilities than online banks. Many online banks pass those savings along to customers through higher APYs and fewer bank fees.
The CIT Bank Savings Builder account, for example, is a high-yield online savings account that earns one of the higher interest rates around, currently at 0.40% APY.
5. Know your score
The economic impact of COVID didn’t just affect individuals, but it also changed life for many businesses. In some cases, lenders tightened their reins in terms of opening new lines of credit and credit limits for borrowers. One way to know where you stand with lenders and creditors is to know your credit score.
Understanding how credit works may seem confusing, but it’s a great indicator of financial health. Credit scores are also used by lenders, banks, and other companies and organizations to determine eligibility and financing for large purchases like a house or car or to secure a new credit card. Landlords often run credit checks, too, before renting.
Your FICO credit score is determined using five credit factors:
- Payment history (35%).
- Amounts owed (30%).
- Length of credit history (15%).
- New credit (10%).
- Credit mix (10%).
Knowing your credit score and how it’s calculated gives you an idea of where you stand now and how you can improve your credit going forward. Having a good credit score is not the end-all and be-all of life, but it can unlock more options financially.
Here are two helpful resources that let you check your credit score and credit report online for free:
- Credit Sesame. Get free access to your Transunion credit score and report along with other helpful ongoing credit tools.
- AnnualCreditReport.com. This site lets you check credit reports from all three major credit bureaus annually.
6. Make sure you’re insured
COVID taught all of us a couple of valuable lessons — everything can change in the blink of an eye and you can never be too prepared. Having the right insurance can help negate some of the twists and turns (and global pandemics) that life throws your way.
Insurance often feels like a waste of money, especially when you don’t use it that often. If you’re considered a healthy person and don’t go to the doctor that often, it can feel like you’re throwing part of your hard-earned paycheck. But having health insurance means you’re covered when you do run into an issue.
7. Live below your means
During the pandemic, spending habits changed, with many people learning to live below their means. For many, unemployment and illness forced the issue. Others realized it was the smart thing to do or didn’t have the luxury of spending money on things like going out and vacations. People learned to stick to the basics with spending, especially during stay-at-home orders in many states.
As parts of the country open up more, it would be easy to switch your mindset back to pre-pandemic spending. But keeping your expenses lower is a great way to save money and also protect yourself moving forward.
8. Don’t be afraid to ask for (financial) help
The coronavirus pandemic forced many people to do something they’ve never had to before — ask for financial assistance. Whether it was a break on rent payments or pausing debt collection, COVID put more people in a position of financial struggle than anyone has seen in decades.
Reach out for help to see if there are payment plans or other financial assistance programs available. Here are some places to contact if you need help with your bills:
- Utility companies.
- Medical facilities.
It’s not easy to ask for help financially, but sometimes it’s the only way to get relief. Even if the pandemic ends soon, your financial situation may not change right away.
9. Don’t rely on credit cards to get you through tough times
I’m a huge fan of credit cards normally, but realize that’s where many people turned for help during the pandemic. They may not realize it yet, but most credit cards come with incredibly high interest rates and can lead to a cycle of debt that’s hard to escape.
Credit cards are a great tool, but they are not the best option when you’re in a financial crisis.
The best time to use credit cards is when you have money to pay off your balance in full each month, so you avoid costly interest charges. You don’t have to avoid credit cards entirely, but don’t make them your first line of financial defense when you’re in a bind.
10. Save money whenever possible
We all have goals we’d love to achieve, whether you build an emergency fund to handle all those unexpected expenses or save for an epic adventure once travel opens back up. The best way to achieve those goals is to plan ahead and save money towards your goals.
Saving money, for most of us, often means we need to cut out other spending. If you’ve started tracking your expenses and put a budget in place, saving becomes a lot easier. Look at your notes and see where you can adjust your spending and move more money to your savings goals.
One of the best things you can do is open separate savings account for your savings goals. This creates a barrier between your everyday money and money set aside for specific future goals. Your money is still accessible, but separating your money makes it less likely that you touch those extra funds unnecessarily.
Regardless of when (or if) life returns to normal post-pandemic, having a solid money plan will help you save money, pay down existing debt, and free up funds so you can achieve life goals.
Start with these 10 money skills to improve your finances and lay the foundation for financial security and success this year.