Halfway through 2021, what can you do now to finish the 2021 investment year strong?
By: Eddie Ortiz, Founder & CEO of PressPlay Finance
With the world starting to open up slowly post-pandemic, it can be very confusing on what to do with your money now. People generally fell into one of two categories during the pandemic: (1) Those whose earnings were affected or (2) Those whose earnings were not affected.
For those with earnings affected, there has been a renewed focus on basic budgeting to get them back to a place of having the dispensable income needed to continue wealth creation. For those whose earnings were not affected, they saved their money given the fact that the world was shut down so commuting costs were zero, general entertainment spending was small, etc. Regardless of category, people restrained themselves the first half of the year and are now behind on financial moves that should have already been taken care of by the halfway point of 2021.
So, what do you do if you fit into one of these categories to catch up/have a successful second half of the year?
I recommend that each category take inventory of the following things:
- Back-to-Basics Budgeting: This sounds trivial, but I highly recommend it just to give you peace of mind. Do the simple exercise of jotting down what your total income is AFTER taxes, what you have already saved, what your fixed expenses are, and what your discretionary expenses are. Fixed expenses are things like housing, food (not eating out, more like groceries), transportation, etc. Discretionary expenses are things like eating out, clothing, entertainment, personal travel, subscriptions, etc. Then take your income and subtract your expenses. What’s left is what you can put into savings as well as discretionary spending. If you have nothing left over or worse, you’re already overspending, consider looking at your discretionary spending and reducing appropriately. I recommend to clients the 50/30/20 budgeting plan where you spend 50% of your budget on needs, 30% on wants, and 20% on saving. You can find a free version of this budget plan with a simple search engine search.
- If in debt, pay it down: I recommend living as lean as possible if in debt after you’ve cut discretionary spending down significantly and use all that money towards paying obligations. I would also stop contributing to any investments if you’re doing that and turn those monies over to paying off your debt. You may THINK you’re saving money but you’re actually losing it as most loans are charging you more interest than what you’re making in gains from your investments. Also, inquire with a financial planner on how to capitalize on other market conditions.
- If not in debt, play catchup with your investments: Find out how many pay periods are left in the year from your employer and then divide the amount you want to contribute for the year by the amount of pay periods you have left. Once you have that number make sure those contributions are being taken out of your paycheck and put into your country’s version of a 401k/IRA (ISA, LISA, etc.). For example, in the U.S., if you’re wanting to contribute $19,500 (the max contribution for 2021) to a 401k, there are around 13 pay periods left in a 26 pay period schedule (meaning you’re somewhere in June when you calculate this). That means you’ll need to set aside $1500 per pay period to get to the max contribution for the year of $19,500. You can adjust this as needed and can do this with an IRA too which, in the context of this example. $6,000 is max for IRA contributions and you would need to save $461.53 per pay period to reach that goal.
- Maintain an emergency fund: If this pandemic has taught us anything it’s that anything can happen at a moment’s notice, and you must be prepared financially. I always suggest at least 3 months of expenses for your emergency fund. I would focus on getting at least 1 month as quickly as possible and then you can take a little time getting to 3 months as you prioritize your other financial goals.
- Focus on efforts that improve your credit score: Do everything in your power to pay bills on time, perform an Experian Credit Boost, and do not close any credit card accounts, even if you don’t use the credit card and have paid it off. This will ensure you have a long credit history. Performing an Experian Credit Boost is a good way to give your credit a boost in the short-term and paying bills on-time is a great way to help it continue to climb long-term. If you are in good financial positioning, consider paying off a personal loan early; this will also give your credit a boost as it improves your credit worthiness.
Going through these five steps can be a useful exercise to ensure you’re on track to having a great second half of 2021 and positioning yourself to have an even better 2022.
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