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Finance

Top Money Tips for 2021

2020 was a challenging year that changed how people interact with their money going forward. The only other event that was slightly comparable to last year was the economic depression of 1950. Though in 1950, the world was not wrestling a pandemic that swept across the globe and affected the economy negatively.

Some companies were forced to downsize and even close down. Being the beginning of a new year, I am now forced to look into my money habits and see how I can better prepare myself should a significant event like covid-19 happen again. In this piece, I share some of the tips that enabled me to survive in the wake of salary cuts and working from home. I am thankful I did not lose my job.

Reduce on Spending

2019 forced me to look at my expenses keenly and see where I can trim the fat. I analyzed all my subscriptions and realized that there were some I hardly utilized, so I terminated some of my streaming subscriptions, gym memberships and various online subscriptions that I did not use. I ended up saving around $100 every month.

Paying Myself First

If you are like me, then I am sure that when your salary hits your account, the first thing you think of is the bills that need to be paid. This was my mode of thinking up until some two years back. This mode of thinking pushed savings to be the last item I budgeted for, and in most cases, I did not save since there was no money left. I reversed this around and I now save before I pay my bills. To avoid the temptation of not saving, I automate my savings such that when I am budgeting my money, I have already saved. This is how I pay myself first.

If you feel stuck and are wondering how you can begin saving since you spend everything you earn, you need to analyze your expenses. Once you spend less than you earn, then you free up money you can save.

Saving My Raises and Bonuses

There is nothing as good as a windfall like a bonus or a pay rise. When this happened, I rushed to spend it all on items that I could not buy before. After the money ended, I sometimes thought back and wished I had something better with that money. I came up with a better way. I now save any bonus or raise thus forcing myself to retain my current lifestyle. This has helped me increase my savings over the last three years and give me money to invest.

Manage Debt Wisely

When it comes to debt, there are two schools of thought. Pay all debt off or pay debt off slowly at the lowest payments possible. I think both ideas are good depending on which debt you are tackling. For instance, if I have a mortgage that I am paying an interest of 2.9%, then I will not pay it off quickly. Instead, I will take the extra money that I could have used to pay off the debt and invest in an index fund that might give me an interest of 5% to 10% annually.

However, if I have a credit card debt whose interest is 20% then I will make higher payments to clear the debt as soon as possible. Therefore, do not wait till you have cleared all your debt to begin investing. Manage the debt wisely on a case-by-case basis. Also, if the time and extra money used to pay off can be used to earn you better returns elsewhere, then there is no need to clear the debt fast.

Stay at home

The pandemic caused companies to adopt a work-from-home model. This means little to no work-related transport costs. When our company launched the work-from-home option, I redirected the money I used on transport to my savings.

Refinance My Home

Last year saw mortgage interest rates fall to an all-time low. I refinanced my home from a mortgage interest of 3.9% to 2.9%. A 1% reduction in your mortgage might not seem like much. However, it can save you at least $100 every month, which comes to $3000 in savings for a 30-year mortgage.

Have a fantastic year ahead and remember to stick with the above money management tips for a financially sound 2021.