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It's no surprise that many of us will be eager to say goodbye to 2020 so we can start fresh in 2021. But as the economic and personal effects of the COVID-19 pandemic continue to weigh heavily on Americans, the kinds of resolutions needed might be a little different this year.
Maybe you dealt with or are still dealing with a period of unemployment or poor health. Maybe your saving and budgeting priorities have shifted. If you're hoping to overhaul your finances, or at least revisit them in the new year, here are some options to consider.
(Re-)Build Your Emergency Fund
Some consumers found they had fewer ways to spend their money during lockdown this year, while others dipped into or cleared out savings to make up for lost income. Wherever you stand, it's a good idea to take stock of your savings. The effects of the pandemic are a reminder that it's never a waste of time to consider how to protect yourself from a financial curveball.
Experts say it's best to save at least three months' worth of expenses in an account you can easily access in case of financial necessity. Your emergency fund can help you pay for basic items like food, housing and utilities during an emergency like job loss, or if you're on the hook for surprise medical bills.
Set up an automatic transfer now, of as little as $25 or $50 a month if necessary, to get yourself in the habit of saving. And if you receive a tax refund in 2021, consider putting at least a portion of it toward emergency savings to kick-start the fund.
Look Into Refinancing Your Mortgage or Student Loan
In an attempt to restabilize the economy after the shockwaves of business closures and unemployment due to COVID-19, the Federal Reserve set interest rates near zero. Mortgage rates and federal student loan interest rates both hit record lows in 2020.
That means it's a good time to consider refinancing your mortgage to a lower rate if you qualify. You'll still have to pay closing costs of 2% to 6% of the loan amount, on average, when you refinance. But by using an online mortgage calculator, you can determine whether the lower rate you may receive will make the cost worth it.
Refinancing student loans is only possible through a private lender, which means you'll lose federal loan benefits like Public Service Loan Forgiveness and long periods of forbearance. But getting a lower interest rate might also be worthwhile if you have high-rate private student loans, or you have stable income and don't plan to use the protections available on your federal loans.
Double Down on Retirement Savings
Just 58% of working-age adults had any retirement savings in a 401(k) or individual retirement account (IRA) in 2016, according to an analysis of federal data by the Economic Policy Institute. That means a sizable number of individuals could stand to save more for retirement. And if you lost a job or took a pay cut in 2020, your workplace retirement savings might have been hit particularly hard.
If you're able to, start contributing to a retirement plan or up your savings rate to ensure a comfortable retirement. An ideal aim, recommended by experts, is to save 15% of your pretax income for retirement each year. Your best first step is to save at least as much as your employer will match in your 401(k), if that's an option at your workplace. Increase your savings rate by 1% or 2% in 2021 to get as close to that guideline as possible.
Make Sure Your Credit Card Fits the Bill
There are lots of reasons to reconsider the plastic you're carrying in the new year. If you accrued debt to help pay bills or finance a small business during 2020, consider moving the balance to a balance transfer credit card. If you qualify, usually with a good or excellent credit score, you'll receive a period of time to pay off the balance transfer interest-free: 18 months, for instance, with the Citi® Double Cash Card - 18 month BT offer (after which you'll pay 13.99% - 23.99% variable), or 15 months with the Citi Rewards+® Card (after which you'll pay 13.49% - 23.49% variable), both from our partner. You'll pay a fee of 3%, with a $5 minimum, on the transferred amounts for both of these cards.
Another possibility is that you're carrying a credit card with a high annual fee that you no longer use. Canceling the card might not be your best bet, since it could lead to a dip in your credit score due to a higher credit utilization ratio. Instead, ask the issuer to switch to a credit card from the same company with no annual fee.
Save for the Trip You've Been Dreaming Of
For many people, "travel" in 2020 meant carrying the laptop from the desk to the couch. Still others worked essential jobs or otherwise put travel far from their minds while safety was a top priority. But COVID-19 vaccine availability could make travel an option for a wider group of people in 2021.
That means it's a good time to think about how you'll pay for it, even if you don't plan to fly until mid-2021 or later. Setting up a separate savings account—or subaccount, if your bank offers that feature—just for travel or fun stuff can help motivate you to save. Your employer may even be able to direct-deposit a portion of your earnings into an account that's separate from your main checking account, if you have a particular goal you're eager to hit.
Also consider using credit card rewards points to fund travel. Perhaps you've continued to use your card but haven't applied the points to gift cards or statement credits as many issuers have allowed. In that case, you may have a surplus of points to use. It might be ideal to wait it out and apply those points to any hotel or airline deals that arise when companies urge consumers to travel again.