It’s around this time that new year’s resolutions begin to sputter out and fall by the wayside, accompanied by gloating news stories about how most of us can’t stick to a promise beyond the end of January.
Resolutions may start out resolute, but they can slip away from us as a return to everyday life edges them out. Still, it doesn’t have to be this way. When it comes to your finances, there are some key activities you should be doing with the dawning of a new year, but they don’t have to be sweeping or revolutionary, just sensible, measured and well-timed activities that form good habits and can help you to get the very best from your money.
Here are our top three tips for getting your money into good shape in 2021.
1. Learn from last year
Nobody would argue that last year was normal – 2020 saw some of the most unexpected, challenging and downright surreal circumstances in living memory. But unusual as it was, 2020 doesn’t represent a hiatus, it’s still another year that’s been and gone, and another year closer to the time you’d like to retire.
The real positive about 2020 is that in such a year of introspection, many of us have come to reassess what’s really important in our lives, to take a self-imposed audit of what we really need and what we don’t, and that’s a good thing for your money. We can all use the lessons of 2020 as a crash course in what matters, and allocate our spending according to that learning as we move forward. What you don’t need on a day-to-day basis becomes money to invest for your future.
2. Focus on quality not quantity
Building on those lessons from last year, think about the trade-off between quality and quantity. For large parts of 2020 we were unable to do many of the things we might regard as being ‘essential’ to our quality of life, and in the early part of 2021 some of those restrictions remain. Conversely, we saw a huge uptake in bikes, books and bread makers, as people took up new hobbies and interests or dusted off old ones.
While that might seem at face value like another example of people trying to spend their way out of a slump, the areas that saw investment were about wellbeing, both mental and physical. That’s an important lesson to take forward. As we look to the future, we’ll still want to be able to do the things that make us happy and fulfilled, as we transition into retirement and beyond. It’s a good time to distinguish between those things that offer us momentary happiness by their presence, and those that contribute to our own presence. Jettison the former and concentrate on the latter.
3. Pace yourself
Remember, investing is a long game. You have a preferred lifestyle in mind and a target date to achieve it, but while that might be a few years away it could be decades. As you work towards your goal, your circumstances may change over the years, so it’s important to make sure that across the whole of your time spent investing for the future, your money is working hard for you.
If you’re still accumulating wealth, ask your financial planner to review your plan to understand where improvements can be made. You’ll have a ‘freedom number’ in mind, which represents what you need to live the life you really want, so understand how close you are to that number and what you might be able to do to get there more quickly. Equally, if you’re already spending your wealth, ask your financial planner to go through your financial plan with you to make sure it’s robust enough to maintain the lifestyle you want. While you want to get every ounce of fun out of the next 365 days, you need to know your investments are working hard for you, even in retirement.
4. Resolutions as opportunities, not obligations
As we get older, the years can seem to rush by with little of note to mark them out as extraordinary. Last year is of course a notable exception, and while it may stick out for negative reasons, it nonetheless serves as a useful watershed moment. It’s an opportunity to think about the ‘back to basics’ situation that many of us found ourselves in and to translate that into the way we approach the future.
You may be another whole year closer to your target date, which can feel a little uncomfortable, but to take another view it’s also a brand new year to embrace, a blank page to fill with what you’ve learned about yourself and what really makes you happy. New year’s resolutions don’t need to be sweeping or dramatic, they don’t need to take you ‘out of your comfort zone’ or make for exciting dinner conversations. They just need to be smart, well-considered, based on an understanding of what’s important to you, and geared towards making your future the one you really want.
