Doing better with finances is one of the most popular resolves for the New Year, as with each passing year, we become wiser about making better use of money. With Covid19 leaving the economy in tatters in 2020, it has been a year bereft of stellar performance on the financial front for most people. But it is natural to hold high hopes for 2021 by considering the lessons learned from the pandemic that has changed the ways we save and invest, confirms Eric Dalius.
The pandemic has taught us to face uncertainty with more courage and adapt to our frequently changing financial situation that changes almost every month. The biggest lesson learned is toprepare to face anything. Even if you have not made any major mistakes with your finances in the past year, the time has come to make an adjustment to suit the new normal, believes Eric J Dalius. It is important to learn from our experiences of handling finances in the year of the pandemic so that going forward; we can incorporate the learning in the strategies to avoid problems.
Here are some financial strategies that can help avoid mistakes in 2021.
Follow a budget
Although it is a very basic concept in personal finance management, we often overlook creating a budget and following it religiously. Sometimes we feel that it is too time consuming and boring. Budgeting is not at all difficult, but the challenge is to discipline your mind and train it to follow the budget. By reference to the budget before spending, you will know your financial capabilities and take risks accordingly, if required. Budgets are like road signs that drive you towards your financial goals. Ignoring the budget will leave you rudderless, and you can fall into debt traps that can make your life miserable. Adhering to a budget will help to generate a surplus while maintaining a balance in your spending.
Make judicious purchasing decisions
The economic uncertainty that surrounded us during the pandemic has taught us how important it is to protect our money and think carefully before spending on anything, no matter how insignificant it might be. Many times, we are guilty of spending at will without considering if it is at all necessary. This puts a strain on our finances, which you must avoid ensuring that you can hold on to the money as long as you can. For example, if you find a tiny hole in your favorite dress, you might think of going for a new one immediately. However, it will be better to stitch up the hole unless it becomes an eyesore so that you can use the dress for some more time without anyone finding fault with it.
Keep deferring purchases as much as possible by looking at appropriate alternatives so that they can help to meet your purpose.
Make proper use of your emergency savings
The purpose of Emergency savings is self-explanatory, and you must not tap into it unless you find yourself in an emergency. Ideally, having savings equivalent to your living expenses for six months should constitute the corpus meant for emergencies like unforeseen medical expenses or some unplanned educational expenses for children. The fund will help you meet the expenses without racking up debts. Practice some discipline to avoid the temptation of using the money for any other purpose like a vacation or attending a wedding.
Learn to tackle your disappointments of not being able to spend liberally from the emergency fund. Rather, protect it with the thought that you will only spend the money only when there is a dire necessity.
Do not pay unnecessary account fees
You can use your credit cards that offer a lot of conveniences but always calculate the cost of maintaining the cards, which should never outweigh the benefits. Yes, use credit cards that do not require paying any fee. Despite all the benefits that you accrue from the credit cards, like earning miles, baggage check, and a companion certificate, it can be costly to pay a considerable amount every year for maintaining the card. All the fees of various cards can add up to a considerable amount that eats into the benefits you avail from the credit cards. Consider the benefits that you are likely to avail because many benefits might not suit your lifestyle. Weigh the benefits with the cost of maintaining the card, which, if higher, it will be better to downgrade the card for a free card with fewer benefits that are more relevant to you. It will save you some good money.
Take a buy and hold approach for your investments
Handle your investments with care by avoiding panic when you see your gains vanish in thin air overnight, as it happened in March 2020 in the wake of the Covid19 pandemic. During that time, most people took to panic selling their investments, which later seemed very irrational because the decision was taken in the heat of the moment. Invest with the philosophy of taking the highs and lows in your stride and remain unperturbed by the sudden shocks by knowing that it is only a passing phase. Take a wait and watch approach by holding on to your investments even during the hard times. It will help you maximize the gains at the opportune moment. The more you hold on to your investments more are the more growth opportunities.
Shop with a purpose
Long home stays during quarantine while complying with the government and public health advisories to fight the COVID-19 pandemic have been stressful and boring. Many people took to online shopping as a means of spending time, which they also found entertaining. In the process, they drained their money by indulging in mindless buying, as became evident from a sharp increase in online buying that went up as much by 30% during the early days of the pandemic.
Suppress your urge to buy and add the items to your wish list instead of putting them in the shopping cart. This will help you spend some time staying engaged while planning your purchase without spending money.