As vaccines roll out, a small glimpse of normalcy appears on the horizon. The world has changed along with our perceptions of what is most important in life. Chief among these is a deeper appreciation for how quickly our financial health can be disrupted. Saving for emergencies is more of a priority than ever before, even at the risk of deprioritizing debt reduction. Getting rid of debt should still be on your list of financial goals, though. Not saving for emergencies may be the number one 2020 money mistake you should avoid this year. Here is a list of five more.
1. Panic-Buying Was an Almost Universal 2020 Money Mistake
If you have a large family, shopping at one of the warehouse stores makes sense. If not, limit your purchases to non-perishables. But be mindful of your budget, make a list, and shop around for the best bargains. Shopping in panic mode could have meant that you paid top dollar for your stockpile.
2. Boredom or Emotional Shopping
One prominent 2020 money mistake you should avoid in 2021 is shopping to improve your emotional state. Quarantines and closures forced most of the world inside. Online shopping has increased by more than 30% since March 2020. Retailers hope to see those numbers remain steady in 2021, which means their outreach to you will grow. Take advantage of online retailers’ shopping carts. Put the items you think you want or need into the cart and leave them there until the next day or longer. Give your list of intended purchases a second look—do you need them? Maybe you can find it somewhere else for less. Your goal is to avoid spending money to improve your emotional health, whether it be boredom or depression.
3. Allocating So Much to Debt Reduction That There’s No Money Left for Savings
As mentioned in the introduction, debt reduction is an important goal. Simultaneously, you need funds to tap into when an emergency happens, such as if the car breaks down or you need to buy a new smartphone or cover medical bills.
Set up automatic transfers from your paycheck to your emergency savings and retirement accounts. With the balance, focus on your credit card bills and other loans with the highest interest rates. For now, make the minimum payment due on your lower-interest accounts.
4. Not Creating a Budget
Budgeting is not difficult, but it’s also not so much fun. And with everything you have going on, you can quickly push it to the back burner. But without a budget, you’ll never have control over your money. After the year we’ve just had, you probably need to redo your budget. Set realistic income and expense categories. Go over 2020 and identify (outside of pandemic-related expenses) where your money went. Was there waste? What can you do to generate more income in 2021?
5. Not Preparing for Taxes
Several changes were made during 2020 regarding filing deadlines and stimulus checks. But even during normal circumstances, many people find themselves unprepared for tax season. If your withholding is too high, you’ll have a smaller paycheck. You need this money to save, pay down debt and possibly invest. If you withhold too little, your monthly salary will be larger, but you’ll have an unwelcome tax bill. Use the IRS calculator to get an idea of what you’ll owe in taxes or can expect in a refund. This tool will also help you determine what adjustments you should make, if any, to your withholding statement (W-4 Form.Your goal is to break even—to have the money you need each month and not to owe the IRS anything at tax time.
Once you review your spending from 2020, you’ll probably find other 2020 money mistakes to avoid this year. Saving for emergencies and retirement should continue to occupy the top spots on your list of financial goals. Automating contributions to your emergency savings and retirement accounts is the best way to ensure that your money is invested in you.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a free financial analysis.
Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high-interest credit card debt any longer.