5 Personal Finance Wins to Start 2021

4 minute read

“If you haven’t started, then taking action is more important than finding the best strategy. If you’re already taking action, then ensuring you’re working on the right thing is more important than working harder.” – James Clear, Atomic Habits

Financial goals are one of the most common New Year’s Resolutions. While I think that’s great, they’re often way too vague to hold you accountable and make sure that you accomplish something meaningful

Here are 5 personal finance wins that you can accomplish within the first month of the year to help supercharge your 2021 financial goals and get some motivation under your belt to continue making progress throughout the year.

1. Get Organized

Getting organized may seem too simple to be helpful, but the truth is that it’s one of the most beneficial things that you can do for your personal finances. I believe that one of the big factors that keeps people from reaching their goals is a lack of organization and the unnecessary barriers to success that the issue creates. Being organized makes life easier, which makes accomplishing your goals easier.

If you can’t answer “yes” to these questions below, then consider taking action on this step. Being organized means that you know all of the answers to these questions, or that you can find the answers within 5 minutes or less.

Do you know how to access all of your financial information (bank accounts, retirement accounts, debt, insurance, credit report, etc.)? Does your spouse know how to as well?
Do you know your net worth?
Do you know your household’s gross annual income (before taxes and other deductions)?
Do you know how much of your gross income goes to spending, saving, debt, etc?
Do you know if you have proper insurance coverages in place?
Have you checked your credit report in the last 4 months?
Do you know if you have an appropriately funded emergency fund in place?
Do you have high interest rate debt? Do you know the expected payoff date?
Do you know how much you’re saving for retirement as a percentage of your income, rather than a dollar amount?

2. Increase Your Retirement Savings Rate

Most people should be aiming to increase their retirement savings rate consistently – once per year at a minimum. In a normal year, the beginning of the year is a great time to increase your retirement account contributions to help make sure that your pay increase and/or bonus doesn’t go towards lifestyle creep.

Small increases to your retirement savings rate can make a big difference over time. Consider a 35-year-old couple earning a household income of $200,000 per year. If they were to increase their retirement savings rate by 2%, then they would have saved $120,000 by the end of 30 years. If they were to invest that money and earn an average rate of return of 6%, then the balance would be $316,233 by the end of 30 years. Not too bad for such a small increase.

3. Refinance Your Mortgage

If you haven’t already refinanced your mortgage, then this is definitely something to look into to start the new year. According to Nerdwallet, the average interest rate of a 30-year fixed-rate mortgage as of January 5, 2021 is 2.865%.

The general rule of thumb is that you’re looking to decrease your mortgage interest rate by 1% to justify refinancing. Going from a 3.865% interest rate to a 2.865% rate on a $250,000 loan could save you nearly $50,000 in interest over the life of the loan.

(Of course, this is a simplified example and there are many other factors to take into consideration.)

4. Identify Your Money Dials

This is a concept from Ramit Sethi that I love and that I’ve written about before. A Money Dial is something that you really love spending money on – this can be different for everyone. After you’ve identified what those things are, imagine what life would be like for you if you turned those dials all the way up to spend ten times more money on them than you currently do.

I’m not even asking you to identify your financial goals, just think about what you love to spend money on and what your life would be like if you could spend more on those things.

The catch is that you have to be willing to prioritize and cut mercilessly on everything else so that you can spend extravagantly on those Money Dials that you identified. This exercise should help you feel free to spend more on the things that you love and figure out how to eliminate (or decrease as much as possible) spending on what you don’t.

5. Create A Spending Tracking System

No, I did not say the “b” word. A spending tracking system simply provides you with a way to categorize your expenses and see where your money has gone. Most people don’t stick to budgets, but having a system in place to regularly review your spending (think once per week) can be really eye opening.

I think most people would be really surprised at how much of their money is spent on things that they don’t really value. Reviewing your spending allows you to see how much of your money is not going towards your Money Dials and how much more actually could be if you had a more conscious spending plan in place.

Do whatever makes it easiest for you. You can use online aggregator tools like Mint or Every Dollar or you could use a good old fashioned spreadsheet, although this would be much more manual and may keep you from consistently going through the process.