2020 was an unbelievably stressful year. Public health concerns were paramount, compounded by social isolation and financial uncertainty. Working parents struggled to balance remote work with childcare needs and remote learning. Vacations and weddings were postponed. Amidst these daily struggles, long-term financial planning was an afterthought. But the new year is a great time to perform a quick “financial housecleaning.” Here are a few easy steps to simplify your finances in 2021:
Scrutinize Recurring Expenses
Pandemic-related restrictions prompted a big shift in consumer spending last year. Americans scaled back on travel and in-person entertainment but redirected some of that spending to online shopping, streaming subscriptions, new hobbies, and discretionary home improvement projects.
Consider how your own spending priorities have changed in the past year and whether some recurring monthly expenses no longer deliver the same utility as they did in the pre-Covid era. Some examples:
- Car Insurance – Nationwide, vehicle miles traveled remain 10-15% below pre-pandemic levels. Thanks to a growing preponderance of remote work, many Americans have seen an even sharper decline in miles driven. Auto insurers commonly offered premium rebates during the peak of shutdown orders last spring in acknowledgment of this reduced risk. Still, it may be worth shopping your current policy or adjusting your coverage to reflect current driving habits. Also, consider whether a “pay-per-mile” insurer can offer you a more competitive rate.
- Gym Memberships – Gyms are closed in many jurisdictions, and even where they remain open, many patrons are justifiably anxious about the risks involved. If your gym is unwilling to pause or suspend membership fees, consider canceling or switching to an at-home workout program like Apple Fitness. Or just take up walking.
- Housing – Are you paying a premium to live close to work? Do you find yourself wanting more living space? A growing acceptance of remote work is expanding viable housing options, often to cheaper locales. Even if you’re happy with your current home, consider whether refinancing could lower your mortgage payments.
Over time, most people develop relationships with several different financial institutions. A typical household might have checking and/or savings accounts, brokerage accounts, 401k accounts (for current and former employers), IRA accounts, college savings accounts, and multiple credit cards. But keeping tabs on all of these is a hassle. Wherever possible, aim to consolidate accounts and custodial relationships improving oversight and reducing administrative burden (especially around tax season). Did you change jobs in 2020? Don’t forget to roll over your old employer’s 401k.
Automate & Digitize
After consolidating assets, next look for ways to automate repetitive tasks. Sign up for automatic payments and electronic statements, where available. This ensures that you never miss a payment (and the negative impact on your credit score) while reducing the flow of paper mail (better for the environment and more secure from identity theft).
We’ve previously endorsed password management apps and multi-factor authentication (MFA) as essential tools for safeguarding your digital privacy. Other helpful tools for automating electronic recordkeeping include FileThis, Evernote, and Dropbox. If you’re concerned about fraudulent charges to your credit card account, many banks now allow you to opt into a text message or an email alert for unusual activity or purchases above a certain dollar threshold. Additionally, many credit cards now offer free basic credit monitoring services.
A growing body of evidence links physical clutter to increased levels of stress hormones. Consolidating, automating, and digitizing your financial records removes a common source of household clutter and improves your emotional well-being.
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