It is that time of year that we all will be making resolutions for 2021 and part of those resolutions should be about your financial situation. If you want to set smart financial resolutions for 2021 then you really need to assess how you performed financially this year.
Where is the first place to start with measuring our performance?
If you had any financial goals for 2020, start with a review of your performance in meeting those goals. Given 2020, it might be that you struggled to achieve any of these and yet this review will still be very helpful. If you can pinpoint any reasons that you caused you to miss these goals, you will be able to develop better plans for 2021.
What if we didn’t have any financial goals for 2020, how can we measure our performance?
Start by looking at your current debt situation, did it grow or did you lower your current debt. This is especially important for credit card and personal loans. Also, review your savings efforts from your emergency savings to how much your retirement savings have increased. This review will help you determine if you need 2021 resolutions in these two areas.
What if we are looking for one number to inform us of how we are doing financially?
Calculating your net worth which is not as difficult to calculate as it might seem. Simply add up all of your assets including car, savings, 401k, house and subtract your all of your debts as of right now. Then, look at the same calculation at the beginning of the year. Even if both numbers are negative, if you have improved your net worth, you are doing better.
Are there other aspects of financial performance we should review?
Focusing on your spending habits would an easy area to review as you can just look at your last 2 or 3 months of spending and determine where your money is going. This is a great way to determine if there are areas that you can decrease your spending if you are not saving enough or just want more cash flow.
What is the most important lesson to learn from this review of your 2020 performance?
The most important is to understand your entire financial situation and identify the reasons you didn’t reach your 2020 goals or areas that you should improve in 2021. The lessons we are learn by looking back are the best way to develop meaningful and impactful resolutions for 2021.