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Your 2021 financial resolutions

Expert recommendations for making this your best year ever (at least financially)

Is 2021 a good year for making financial resolutions? It depends on who you ask. Jim Wang, founder of WalletHacks, notes that 2020 was a rough financial year for a lot of us — which means you might not be ready to think about rebuilding your emergency fund, increasing the amount of money you put towards credit card debt repayment, or setting any big financial goals. “If the thought of making a financial resolution for 2021 fills you with dread, skip it this year.”

Jerry Zeigler, Accredited Financial Counselor® (AFC), owner of JZ Financial Management and a member of the Better Financial Counseling Network, takes the opposite approach. “Nothing about the existence of a pandemic and 2020 changes what your financial resolutions and goals should be. The principles of good personal finances haven’t changed. What matters is where you are financially and where you want to be.”

So — where are you financially, where do you want to be, and what do you need to do to get there? If you lost your job due to the COVID-19 pandemic or spent your emergency savings during quarantine, earning more money might be your biggest priority for the upcoming year. (In which case, you should check out our guide to COVID-friendly side hustles.) If you were among the lucky percentage of Americans who were able to increase their savings during 2020, thanks to reduced expenses on everything from work lunches to family vacations, what should you do with your extra cash?

We asked four personal finance experts what kinds of financial resolutions people should consider for 2021 — especially since the next year is probably going to be as unprecedented as this one. If thinking about what you’d like to do with your finances in 2021 feels too complicated and/or stress-inducing, you can always take Jim Wang’s advice and skip the resolutions this time around. On the other hand, setting some thoughtful, achievable financial goals might help you relieve some of your money-related stress — so let’s see what financial advice the experts recommend for your new year’s financial resolutions.

In this article:

Check in with your financial situation

Before you start making 2021 financial resolutions, take a good look at how 2020 affected your finances. Did you spend more money on a credit card than you were anticipating, or did you end up with a little extra money in your bank account? The answer may affect the kinds of goals you set for the upcoming year.

“I would advise people to approach resolutions for 2021 based on how they fared in 2020, the holes they discovered in their plans for the year and the vision they have for the future,” explains Patricia Stallworth, CERTIFIED FINANCIAL PLANNER™ professional, founder of PS Worth and host of the Minding Your Money Minute podcast. “Those who did not fare well will most likely see the need to put more emergency-related options in place — emergency funds, slashing expenses and ensuring that the entire family is working together — while those who fared well might focus on creating forward-looking options such as growing their business, advancing their careers, building wealth, helping others, etc.”

Steffa Mantilla, certified financial education instructor, and founder of Money Tamer, suggests asking yourself not only how you fared in 2020, but also how 2021 might change your financial situation. “One main thing people should ask themselves is how secure do they think their job is. Is their industry one that will be downsizing if things continue, or is it relatively stable regardless? The answer to this will help determine how you should handle your finances in the upcoming year.”

“The principles of good personal finances haven't changed. What matters is where you are financially and where you want to be.”

—Jerry Zeigler, Accredited Financial Counselor®

Keep your resolutions simple

Since 2021 is likely to be a year of both uncertainty and change — a potential COVID-19 vaccine, a new administration, the ongoing fight for racial and social justice — it might be a good idea to keep your 2021 financial resolutions simple.

“Maybe it’s saving up $400 into an emergency fund or downloading a budgeting app to help you learn where your money is going,” says Wang. “Much like how making your bed in the morning represents a small but symbolic win, a simple resolution is a small but symbolic win to help 2021 start off right.”

If you want to make a simple new year’s financial resolution for 2021  but don’t know where to start with your budgeting goals, Zeigler suggests focusing on one of the core components of financial security: saving more, spending less and/or paying off debt. “Having an adequate emergency fund, reducing or eliminating debt, and controlling spending are often still the best places to look at first when choosing financial goals.”

Once you’ve assessed your financial health and chosen a potential savings goal, see if you can break it down into a simple, achievable financial plan. Maybe you want to take Wang’s advice and save $400 in an emergency fund, for example. That’s a good number to start with, since it’s the amount of money the Federal Reserve considers necessary to cover a small unexpected expense — and in May 2020, the Federal Reserve’s Annual Report on the Economic Well-Being of U.S. Households revealed that only 63 percent of American households had enough extra cash to cover a $400 emergency.

To save $400 in 2021, you’ll need to set aside $7.70 per week. If that sounds achievable, great — and if saving $7.70 a week is the only financial resolution you want to make this year, that’s all you need to do. “Resolutions are personal and should reflect your circumstances and values,” explains Stallworth, “and they will only work if you create a plan that you follow and implement.”

If your finances need help, focus on your emergency fund

What should you do if you’re still recovering financially from 2020 — or worried about what might happen to your finances in 2021? All four of our financial experts stressed the importance of an emergency fund, especially during a time in which illness, job loss and economic shifts can affect your monthly earnings and financial resources. If you set just one financial resolution for 2021, see if you can set aside a little extra cash for emergencies.

“If you don’t have an emergency fund, building up a three-month one is essential,” explains Mantilla. “Ideally, having a six-month emergency fund is more secure since the pandemic is making the job hunt take longer.”

What does it mean to have a three-month emergency fund, and how is it different from setting aside $400 for an unexpected expense? “Your emergency fund should be based on your bare-bones budget for surviving monthly,” says Mantilla — which means it’s probably a good idea to ask yourself just how much money you and your family need to get by every month. How much would it cost to pay the bills, keep everyone fed, get to and from work, and so on, once you cut out extra expenses like streaming media services?

Multiply that number by three, and you’ll have your emergency fund goal amount. Divide that figure by 52, and you’ll have the amount of money you need to set aside each week to hit your goal.

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If your finances are doing well, give back to your community

If you already have your emergency fund in place, you might want to consider other financial goals like increasing your student loan payments or refinancing your mortgage. You might also want to consider Patricia Stallworth’s advice and set at least one financial resolution that involves giving back to your community.

You can start small — literally — by supporting small businesses. “Many small businesses are having to close down their locations,” says Mantilla. “One resolution is to patron them for all your needs. Order takeout or buy gifts from them to help keep them in business. Most stores have made it easy to order online and have contactless pickup.”

If you want to expand your philanthropy, consider switching your annual charitable donations to monthly contributions. Charities and non-profits need your year-end support, but monthly gifts allow organizations to plan ahead and use donor money more strategically. If you don’t know where to donate, use our guide to charitable giving to get you started.

You might also want to use your resources to help close the racial wealth gap. This can be as simple as supporting Black-owned businesses, or as complex as using impact investing strategies to invest for racial justice.

Think of it this way: If you have enough financial stability to cover emergency expenses, survive a period of unemployment and navigate the unexpected turns that 2021 might bring, it’s time to ask yourself what you can afford to give to others. When you share your resources with people who are still building theirs, everybody benefits — and since generational wealth compounds, your gift could have an impact that lasts well beyond the next calendar year.

If you still aren’t sure what kind of financial resolution to set for 2021, start by asking yourself Jerry Zeigler’s three questions: Where are you financially, where do you want to be and what do you need to do to get there? Then make a simple, achievable plan that will help you move closer to your financial goals. If the next year proves to be just as unprecedented as this one, you can always change or adjust your financial priorities — and if you don’t want to set any financial resolutions for 2021, that’s okay too.

That said, it’s always a good idea to resolve to set aside a little extra money for unexpected expenses. After this past year, we all know just how important it is to be prepared for the unexpected.

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About Nicole Dieker

Nicole Dieker has been a full-time freelance writer since 2012, with a focus on personal finance and habit formation. In addition to Haven Life, her work regularly appears at Lifehacker, Bankrate, CreditCards.com, and Vox. Dieker spent five years as a writer and editor for The Billfold, a personal finance blog where people had honest conversations about money, and is the author of Frugal and the Beast: And Other Financial Fairy Tales.

Read more by Nicole Dieker

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Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

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Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

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