How To Spend in 2021

Last year we were just trying to roll with the punches. Hopefully now we can apply some of those survival skills to our finances.

For many people, 2020 was not a year for saving money. Even those who remained employed suddenly found themselves shelling out for unforeseen expenses: A used car because public transport suddenly seemed unsafe. A salary for a pod tutor to help their children with remote learning. Subscriptions to multiple streaming services to make life at home more tolerable.

And that’s the best-case scenario. Spending choices were more fraught if you or yours lost a job, fell behind on your rent or mortgage, or endured a health bill. Congress passed a sweeping stimulus bill (and a second) to help, but the influx of cash and debt relief also provoked a sense of whiplash: money coming in and money going out at uncertain times, and in unknown amounts.

Here’s how to get a handle on your finances in the new year, and employ a few tricks to help keep your spending down.

Many Americans start the year with a frugal turn after a bout of holiday gift-giving: About half of those making New Year’s resolutions want to save more. A top financial New Year’s resolution is often paying down credit-card debt, which for the country was on the rise at the end of 2020.

The trouble is that most people are not terribly successful at adopting thrift and are soon back to their old spending patterns.

Brent Weiss, a co-founder of the financial planning firm Facet Wealth, thinks we’re being too vague with our money goals. Saving more or spending less are laudable aims, but you should “focus on what you are trying to achieve,” he said.

Do you want to pay down debt? Build up a depleted emergency savings fund? Plan an end-of-Covid trip with your closest friends? By identifying why you want to trim your sails and where you want that money to go, you’ll give yourself a tangible target.

Give your goal a name, estimate how much you need to save, and by when. Those details are key, Mr. Weiss said, to keeping going as the dreary winter months slog on and your resolve weakens.

Last year offered a kind of natural experiment: Your ability to spend was curtailed, and so you gained a sense of what you really wanted and what you didn’t really need.

Maybe you learned you enjoyed driving to the beach more than flying with your toddlers for a vacation. Maybe ordering out a few more nights a week was a lifesaver after a busy day. Maybe you want to keep contributing to a charity you came across.

“Heading into 2021, we can use this information to reshape our budget into a template that prioritizes the spending we most enjoy,” said Kevin Mahoney, a financial planner based in Washington, D.C., who focuses on millennial money issues. “And we can continue to minimize or forgo those expenses that we’ve learned we can live without, diverting them instead to higher value uses.”

By carving out space for the items you like, you’ll end up spending less on what you don’t need.

The idea of a “budgeting system” can sound off-putting or intimidating to even the most well intentioned. To take the edge off, employ a strategy that jibes with your tastes.

For instance, households used to take their paychecks and divide the money into envelopes earmarked for certain purposes (groceries, mortgage, insurance). The point was to make the best use of every dollar as soon as it came into your possession and not to overspend.

Such fastidiousness, though, can be exhausting, so others improvised. One saver interviewed in a 1959 book, “Workingman’s Wife: Her Personality, World and Life Style,” described her “silly little system,” in which she would divide her husband’s paycheck into two piles: one for groceries (which went into a kitchen drawer) and one for everything else (which went into a tin can).

As saving tools, envelopes and tin cans are pretty much obsolete but the principle still holds: You want to have some sense of where you’re spending so you don’t overdo it, but the plan should make sense to you.

There are many avenues to explore. Most major cards will allow you to see on your account page just how much you’ve spent and on what. Free apps (like Mint) will track all expenses across all of your accounts if you happen to spread out your spending. You could also get creative and keep a spending journal for a month or two, documenting each transaction and subtracting it from the amount you expect to earn that particular month. Or toss your credit cards in the night stand for a month and pay for as much as you can in cash; research shows you’ll spend less.

Try out a few different options over the next few months; set up the digital equivalent of the tin can and the kitchen drawer, being more mindful of spending and allocating money into a savings account if you can, and see what sticks.

In December, Congress passed a $900 billion relief bill that includes federal unemployment assistance and direct payments to individuals and families. Depending on your eligibility and family size, those dollars should be hitting your bank account soon.

For federal student-loan borrowers, payments had already been paused until January, and the Biden administration may yet provide more assistance. Plus you can soon file your taxes, which for some people may result in a refund of hundreds or thousands more.

Before you get used to the idea of the money sitting in your bank account, making it harder to part with, identify which one of your goals you plan to put the cash toward, and do so immediately. Not only will you jump-start your savings goal, but a burst of sudden progress will make the entire task seem more doable.

Where should you start? Sam Brownell, founder of the wealth advisory firm Stratus Capital Management, recommends your emergency savings fund, which experts say should contain enough to cover three to six months worth of essential expenses. Prioritize your savings before debt, he said. The relief bills offered help to homeowners and renters who can’t make payments, and even if student loan payments resume in February, you might apply for deferment or forbearance if you’re having trouble paying. Credit card debt can be, in effect, refinanced through a balance-transfer or a personal loan.

Having a chunk of cash in tow can be a beachhead against tough times.

You can still slip up.

Digital walls are permeable and you can all too easily, say, raid your newfound savings for a last-minute post-vaccine getaway. Do that a few times too many and you’ll revert to your spendthrift instincts.

The key is to protect you from yourself. Meir Statman, a professor of finance at Santa Clara Universityin California, recommends making your savings functionally difficult to access.

“One way is to place the emergency fund in a bank that is at least an hour’s drive away, and cut the A.T.M. card,” he said. “Another is to place the money with Mom, who is good at tough love. You’ll have to beg for your money, and perhaps be too embarrassed to beg.”

The same rule applies to spending. When you’re online shopping, disable your credit card from any store accounts so that you’ll have to track down your wallet if you want to buy something. Or make a deal with your spouse to discuss any purchase over a certain amount. Perhaps you’ll make the extra effort, but you may only do so for something you really want.

Last year is mercifully behind us. With a little luck, and some considered spending, a more prosperous one may lie ahead.

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