The coronavirus (COVID-19) pandemic upset just about everything in 2020, including personal finance. It’s not surprising then, as people look ahead to 2021, that many are resolving to improve their money management.
An end-of-the-year survey by personal finance site MoneyRates.com found “I need to be better with money” ranks right up there with quitting smoking and losing weight. In the survey, a majority of those making financial resolutions list three main priorities -- save more, spend less, and pay down debt.
Establishing a budget
The survey found that just over 60 percent of respondents intend to save more in the coming year. Those 55 and older, who are fast approaching the traditional retirement age, are the most motivated.
More than 38 percent said creating a budget with a specific savings amount would be their main approach to saving, followed by setting up automatic deposits into savings accounts.
"It's concerning that 28 percent of those who say they plan to save more don't identify any specific steps for how they plan to do so," said Richard Barrington, MoneyRates' senior financial analyst. "On the positive side, over a third of people who intend to save more plan to start by creating a budget. Having a budget is the single most important step to boost savings. It creates a specific savings goal but also ensures that more money is coming in than going out."
A big part of being able to save money is to reduce expenses, especially credit card debt. The National Foundation for Credit Counseling (NFCC) is a non-profit organization that helps consumers set up a plan for reducing credit card debt.
In its advice to consumers resolving to reduce debt in 2021, the NFCC suggests setting goals that are specific, measurable, attainable, relevant, and time-bound. According to the organization, goals need to be realistic but challenging to keep you motivated.
To reach those goals, a budget is an essential tool. It’s like a roadmap and keeps you from getting lost. With a budget, you know where you are at all times.
More than half of consumers want to reduce debt
Nearly 55 percent of those in the MoneyRates survey said they hope to reduce their debts in the year ahead. Focusing on high-interest debt like credit cards is a smart move since the interest rates of those balances averages around 17 percent.
In some cases, a balance transfer credit card that offers 12 or more months of 0 percent interest can help reduce debt faster since 100 percent of the monthly payment goes to pay off the principal.
ConsumerAffairs has researched balance transfer credit cards and posted our findings here.
"Prioritizing debt so you pay down the highest interest debt fastest is the most cost-effective way to reduce debt," said Barrington. "It helps if you can reduce the interest rate on some of your debt balances. However you prioritize your payments, though, always make sure to meet the minimum monthly requirement for each debt."