Katia Chesnok is a Latina money expert and coach and the founder and content creator of Economikat, a personal finance educational platform. She educates Latinx on all things money and empowers them to earn more, save more, side hustle and start investing to build wealth.
2020 was marked by the start of the pandemic and the toll it took not just on our health and well-being but on our finances. Many of us struggled with job loss or cut wages last year as a result of the pandemic and while it’s overwhelming and scary, there are things you can to help yourself. So as we set our intentions for 2021 let’s think about the lessons we learned in 2020. Let’s ask ourselves the following questions: How can we improve the way we manage our finances? Are we prepared in case of emergencies? Do we depend only on our 9 to 5 job salary or do we have different income sources? Are we investing for our retirement or living within our means?
As you reflect on your own finances, here are some specific financial goals you can start this 2021 to better prepare yourself for what lies ahead.
Save your emergency funds
2020 taught us the value in being prepared for emergencies considering the effects and economic toll of the pandemic. Our emergency fund is the foundation of our financial well-being and that’s why it’s so important to save from 3 to 6 months of funds, which should cover all our monthly expenses. These funds should only be used for emergencies.
One way to start saving our emergency funds is by cutting our monthly expenses. But, how can we keep track of our expenses? By creating a budget that will tell us our income and expenses every single month. A budget can be created manually by pen and paper or digitally using a budgeting app like Mint and You Need a Budget. Once we create a budget, we can identify which expenses we could cut or which memberships we could cancel.
Also, one way to start saving our emergency fund is by automating our savings. One of the most challenging things about saving money is actually remembering to do so. By making this process automatic funds will be transferred from checking to savings account weekly or monthly.
Cut back on unnecessary expenses and identify your wants from your needs. Start saving by cooking at home, as much as you can. This can save you so much money per month! All those little expenses do add up…yes, you can have a nice brunch outside one Sunday or your favorite latte one afternoon – but if you’re struggling financially now and you’re not able to save anything, then try to reduce them to once every 2 weeks. When grocery shopping use more coupons, buy generic food, non-branded and always go shopping with a list to avoid temptations.
Negotiate Your Salary or Get that Side Gig Going
In addition to living within our means, we can also try to make more money through side hustles so research about the side jobs that are in demand right now that match your skills. Think of something that you always wanted to do that maybe you didn’t have the time or something that you’re passionate about. Maybe you can start monetizing that hobby or side project by starting a blog for example. Right now, there are many side hustles in demand such as delivery jobs, online tutors, virtual assistants, jobs at grocery stores, digital marketers among others.
Additionally, try to negotiate your salary if you’re currently employed. But, before you do that make sure that you: know your specific achievements in the company and you can explain them to your boss, make sure you find the right time to talk with your boss and also research your current salary range in the market on sites like Glassdoor and Payscale.
Pay off credit card debt, student loans and improve your credit score
If you currently have debt, especially credit card debt, start by organizing all your paperwork and by knowing how much you owe. Stop using the credit cards if you can and use cash at least until you pay off the debt. Have open communication with your creditors such as your student loans providers and banks.
There are two common debt payment methods: the snowball method and the avalanche method. The snowball method is when we pay first out credit cards with the lowest balances and then the ones with highest balances. Whereas, the avalanche method focuses on paying the credit card or debt that has the highest interest rate first while paying the minimum payments on all other cards.
Paying off your debt and especially your credit cards as soon as possible will positively impact your credit. Your credit score will improve if you pay your cards on time, if you keep your oldest cards open even after you paid them and if you use less than 30% of the card credit limit. Also, make sure you check your credit report at least every 6 months to see if there’s any suspicious activity or any errors.
Start investing to build wealth and for your retirement
If one of your financial goals for 2021 is to start investing, then first make sure you have your emergency funds saved preferably in a HYSA (high yield savings account). A HYSA is a savings account that pays you a higher interest rate than a regular savings account. So, that’s a basic risk free way to grow your money. Now, the interest rates are lower than usual at around 0.50% but they’re still much higher than a traditional savings account – that usually pays 0.01%.
The first thing to do if we want to start investing is check with your employer to see if you qualify for a 401k- which is an employer sponsored retirement plan. If you don’t qualify or if you’re working independently then consider opening a Roth IRA or an IRA (individual retirement account). The biggest difference between a Roth IRA and a Traditional IRA is when you get a tax break. With a traditional IRA the contributions are tax deductible now, but withdrawals in our retirement are taxable. But with the Roth IRA, contributions are not tax deductible now but during our retirement the withdrawals are tax free. Also, with the Roth IRA contributions can be withdrawn at any time.
Before you start investing, learn the investing terminology as much as you can. I like places like Investopedia and Yahoo Finance to learn terms and research as much as you can about this topic so you can make informed decisions. We know the vocabulary can be overwhelming but start small and check out The Balance’s breakdown so that words like “bond” and “common stock” become part of your day to day.
Learn a new skill on 2021
If one of your goals is to learn a new skill this new year, then you have to invest time and energy on yourself. How can you do it? By reading more, attending seminars, workshops or classes on topics that you’re interested in. The best investment you can make is adding to your skillset so that you have more to offer.
There are many sources online that can teach us new skills for free or for less that a traditional college would charge us such as Coursera and Khan Academy. Also, by learning a new skill we’re opening new opportunities for promotion etc at our current job or we can even start a new side hustle or side job with the new skill we’ll learn. Also, surround yourself with someone that already knows the skill you want to learn or find a mentor if necessary.
The way we manage our personal finances is influenced by our mindset; even more than by our actual numbers. In my opinion, finance is 80% mindset and 20% math. Why? Because having the right mindset is so important if we want to feel financially confident. A scarcity mindset is an invisible ceiling that limits our dreams and tells us that we can’t do something before we even try to start. Instead of saying “I don’t have money now” get into the habit of saying, for example, “How can I make more money now?”
The pandemic really tested our stability and overall wellness but 2020 also taught us what is really important: saving, investing and having multiple streams of income. That, in addition to patience, consistency and being focused on our “Why” will help us reach our 2021 financial goals.