Financial House Cleaning: How to Organize Your Finances in 2021
- Organizing your finances means creating a budget for savings and debt repayment.
- Try to cut spending across the board and putting more toward savings or debt repayment.
- If debts are out of control, consider debt relief strategies.
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Just like a messy home, messy finances can be stressful and overwhelming. The good news is there are plenty of ways you can organize your financial house and start the New Year off on the right foot. By cleaning and organizing your finances the way you would your house, you’ll be more likely to stick to your budget, save money, and meet your short and long-term goals.
So if you’re ready to set up a realistic financial plan and learn how to organize your finances in 2021, here are some tips to get you started.
Create a budget (or tweak your current one)
Any financial plan, new or old, starts with a budget. With a solid budget in place that you follow, you’ll have more control of your money and find it easier to organize your spending, track your financial goals, and build up a cushion for unexpected expenses.
In the event you already have a budget you used last year, consider how well it worked for you. You may find that you need to change it a bit or start from scratch and come up with a new one, especially if your income changed in 2020. Two of the most common budgets include:
Pay yourself first: Pay yourself first can be a good budgeting tool if saving money is your top priority this year. Calculate how much you earn after taxes and subtract your expenses. The figure you come up with may give you an idea of how much you can afford to pay yourself every month.
50/30/20 plan: The 50/30/20 budget can ensure you have enough money for your needs, wants, and savings goals. You allocate 50% of your after-tax income to your needs, 30% to your wants, and 20% to your savings goals.
Check your health insurance
Given we are still facing a global pandemic, scrub your current health insurance policy to find out if anything has changed from last year. For instance, you don’t want to visit your regular doctor, only to discover that they‘re no longer in network. Here are some things you’ll want to pay attention to:
How much are your premiums, deductibles, and copays?
Which doctors are in your network?
What services are and are not covered?
If you lost your job due to the pandemic, your first goal should be to make sure you still have health insurance coverage. This may be through your spouse’s plan, or you can look into COBRA, Medicaid, or the Affordable Care Act Marketplace. Forgoing health insurance can lead to high, out-of-pocket medical costs that may make a mess of your savings and financial goals.
Consider your housing
Chances are your rent or mortgage is your largest monthly expense. If you’re struggling financially, downsizing can free up some serious cash flow and help clean up this part of your financial life.
If you’re a homeowner, you may want to consider a less expensive property with a lower mortgage, property taxes, and insurance premiums. A home sale could bring not only fewer monthly expenses, but the cash to use toward other goals like paying off debt or saving for emergencies.
Fill out your new W4 tax form correctly
One way to clean up your finances (that you might not have thought of) is to take a good look at your taxes. If you’ve landed a new job, your employer will likely ask you to fill out a W4 form. This way they’ll know how much to withhold from your paycheck. Use these tips to make sure you fill out your W4 thoroughly and correctly.
Consider other jobs and your spouse’s job: If you hold more than one job, or your spouse is employed, use the IRS Withholding Estimator to figure out how much you’ll need to withhold. Enter this amount on line 4(c).
Claim dependents: Dependents are children or others who live with you and depend on you financially. If you have dependents, make sure you claim them on your form. This can help you determine your eligibility for the Child Tax Credit and other credits.
Withhold additional taxes if necessary: The W4 will ask you if you’d like to withhold additional taxes from your paycheck. If you have a side hustle or any other type of 1099 income or collect pension or Social Security benefits, for example, withholding extra money can save you from a large tax bill.
Review childcare expenses
Even though vaccines have made their debut, many students are still going to school virtually or are unable to attend the childcare or school they had in the past. If this holds true for your children, one key part of your financial housecleaning will be understanding how this ongoing situation may affect your childcare expenses. Here are some ways to reevaluate what you spend on childcare in 2021.
Speak to your employer: Your employer may have childcare assistance programs or offer discounts on care. If they don’t, they may allow you to work in the early mornings, late afternoons, and evenings so you can care for your children during the day, and help ease the DIY childcare burden.
Shop around for childcare centers: Some childcare centers are open (depending on where you live) and may offer sibling discounts or payment plans. They may also consider your income and provide you with a more affordable rate.
Consider Dependent Care FSA Accounts: If you’re eligible for a Dependent Care FSA Account, you might be able to use your pre-tax dollars on child care expenses. Find out if your employer offers this perk.
Think about nanny or babysitter sharing: Nanny or babysitter sharing is when more than one family shares a nanny or sitter in order to reduce childcare expenses. If you know other parents who are in the same boat as you, you may want to try and create a pandemic pod and share in childcare.
Take control of your debt
If you started the New Year with debt, that is one mess you should consider cleaning up first. With our free How to Manage Debt guide, you can learn how to take control of your debt and enjoy a brighter financial future. Our guide may be just what you need to set up a strong financial plan and get your financial house in order in 2021, and beyond.
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