The year 2020 has been a tough one for all of us, mainly for reasons out of our control. The Covid-19 crisis and economic slowdown were just some things that have made it a year many of us just want to forget. Some of us might even have had big plans we’ve had to cancel or change because of what’s been happening this year.
Even though we still don’t know how many things will turn out as we get ready to move into 2021, it’s a good time to plan for the year ahead for things we can control – like our finances.
Here are some tips to help you budget for the new year:
- Review your budget for the past year – Before you start planning for next year, take a look at how you’ve spent your money this year. Did you spend more or less than you earned? What could you have spent less on, or not spent at all? Looking back on how you used your money in the past will help you figure out how you can improve managing it in the future. If you’ve been keeping a budget, that will be useful to help you review your past spending habits. If you haven’t, start now with our budget calculator. You’ll need it for our next tip!
- Make a budget – In addition to a monthly budget to help you track and manage your money, make a budget for the year ahead. Think about how much money you expect to make next year and if there are any events you plan to have, like a wedding (or a baby!), or things that cost a lot of money you want to buy – this could be anything from a new phone to a new house. Figure out these events or items will cost to plan your budget for the year. Don’t forget to look out for deals and discounts, which can be easier to take advantage of if you’ve planned your spending!
- Look at what you owe – Some of us have loans which were affected by the loan moratorium, or maybe a credit card bill that just keeps growing. Review your debt to make sure it’s not getting out of control and use your budget to make sure you’ll have enough money set aside to catch up or maintain your loan repayments.
- Sum up your savings – Once you’ve looked back on what you’ve spent and owe, review your savings. Do you have any? Or have you had to use some of it for emergencies this year? The rule of thumb for savings is to have enough to cover three months of your salary, but if you don’t have that much or at all, now is a good time to add that to your budget for next year. Even though interest rates are at the lowest level in history, this shouldn’t stop you from setting aside some money every month for a rainy day.
- Make sure you’re protected – Do you have an insurance plan you need to renew? Or do you not have insurance at all? The Covid-19 crisis has reminded us the importance of having insurance, so make sure you have a plan that protects you from the unexpected. If you have a plan that’s expiring or don’t have one yet, now is a good time to shop for the best plan depending on what you can afford, so that you’ll be sure to have coverage in the new year.
- Grow your money – Since interest rates are so low, you won’t make as much money from bank savings. If you can afford it and think you’re ready to start investing, start researching types of investments to decide on the best one for you depending on your income, attitude towards risk and investment horizon. Once you’ve done your research and feel really prepared to invest, you could start growing your money in the year ahead.
We may not have good memories of 2020, but the new year is always a time to start afresh, and staying on top of your finances is a good place to start. Whether you’re ready to use all or just some of our tips above, the least you can do is plan how you use your money in the year ahead to help prepare yourself for a worry-free financial future.